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Hutchins Center Fiscal Impact Measure

The Hutchins Center Fiscal Impact Measure shows how much fiscal policy adds to or subtracts from overall economic growth. Use the graph below to explore the total quarterly fiscal impact as well as its components: taxes and spending at the federal, state and local levels. (Methodology »)

 

Hutchins Center Fiscal Impact Measure Contribution of Fiscal Policy to Real GDP Growth Components of Fiscal Policy Contribution to Real GDP Growth

  • Four-quarter moving average
  • Quarterly fiscal impact
  • Federal spending on goods and services
  • State and local spending on goods and services
  • Taxes and benefit programs

Source: Hutchins Center calculations from Bureau of Economic Analysis data.

Hutchins Center on Fiscal & Monetary Policy

TAKEAWAYS FROM THE THIRD QUARTER UPDATE, 11/28/2018
By Louise Sheiner and Sage Belz

The spending and tax policies of federal, state, and local governments added 0.6 percentage point to growth in Gross Domestic Product in the third quarter, fueled by increased spending at all levels of government, according to the latest Hutchins’ Fiscal Impact Measure. Inflation-adjusted GDP rose at a 3½ percent annual rate in the quarter.

Fiscal policies neither added to nor subtracted much from economic growth from 2014 through 2017, but recent federal legislation and increased spending by state and local governments have contributed positively to growth. Local, state and federal fiscal policy have given more of a boost to the economy in 2018 than in any year since the recession-era stimulus in 2010.

Spending at the state and local level grew at a 2 percent annual rate in the quarter. Earlier estimates that showed a robust increase in state and local government investment in the third quarter have been revised downwards, indicating the sector’s impact on growth was smaller than previously estimated. Nonetheless, investment in the sector, which has been weak since the Great Recession, has showed some signs of recovery in the last four quarters. Growth in investment has been shared broadly between intellectual property, structures and equipment. Employment at the state and local level has also picked up over the past four quarters, but remains below its pre-recession levels.

Federal spending rose modestly in the third quarter, mostly the result of higher defense expenditures, and contributed about 0.2 percentage point to GDP growth. Tax cuts enacted at the beginning of 2018 have boosted consumption and added to the pace of growth for the last three quarters, although the latest reading on the FIM suggests their effects on growth may have begun to taper. Transfers at all levels of government rose modestly in the quarter.

Today’s reading shows that the combination of federal, state, and local spending are providing additional stimulus to the economy beyond what is consistent with trend growth.

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