Hutchins Center Fiscal Impact Measure

The Hutchins Center Fiscal Impact Measure shows how much local, state, and federal tax and spending policy adds to or subtracts from overall economic growth, and provides a near-term forecast of fiscal policies’ effects on economic activity.

FEDERAL, STATE AND LOCAL FISCAL POLICY AND THE ECONOMY

By Sarah Ahmad, Chase Parry, and Louise Sheiner

Fiscal policy subtracted 1 percentage point from U.S. GDP growth in the fourth quarter of 2025, according to the Hutchins Center Fiscal Impact Measure (FIM). The FIM translates changes in taxes and spending at the federal, state, and local levels into changes in aggregate demand, showing the effect of fiscal policy on real GDP growth. Real GDP rose at an annual rate of 1.4 percent in the fourth quarter, according to the latest government estimate.

Last year’s six-week government shutdown lowered GDP growth by 1 percentage point in the fourth quarter, reflecting the furlough of employees and a decline in federal purchases. Other factors—the One Big Beautiful Bill Act (OBBBA), tariffs, and underlying trends in fiscal policy – largely offset each other. (See the Fiscal Impact Breakdown spreadsheet in the Downloads section).

We expect fiscal policy to add 2 percentage points to GDP growth in the first quarter of 2026. This reflects the reversal of the temporary effects of the government shutdown, which we assume will boost real GDP in the quarter by 1.3 percentage points, as well as the stimulative effects of the OBBBA on both purchases and taxes.

We forecast that fiscal policy will be roughly neutral over the remainder of 2026 as the stimulative effects of the OBBBA are roughly offset by the restrictive effect of tariffs and by weak underlying purchases. In 2027, we forecast the FIM will turn moderately restrictive as purchases continue to be weak and supply side effects—notably the waning effects of the equipment purchases we assume had been spurred by the CHIPS and Inflation Reduction Acts—turn negative.

This projection incorporates the Bureau of Economic Analysis’s advance estimate for the fourth quarter and the recent Congressional Budget Office (CBO)’s economic and budget projections. We rely on CBO’s tariff projections, which were completed before the recent Supreme Court decision. Given the President’s use of Section 122 to resume tariffs at roughly the same rate as before and the uncertainty surrounding refunds, we think this remains a reasonable baseline. Any reductions in tariffs or large-scale refunds would make the FIM somewhat less restrictive.

The FIM tracks the influence of fiscal policy on GDP growth rates. It measures the direct impacts of fiscal policy on demand (including both discretionary fiscal policy and automatic stabilizers) and includes our estimates of the supply-side effects of legislation and uncertainty as well. It doesn’t include fiscal multipliers. For further analysis on the effects of fiscal policy, read our explainer on the impact of federal, state, and local tax and spending policy on the level of GDP since the onset of the pandemic. For more on the FIM, see our methodology ». You can also read our Guide to the FIM ».