Fiscal Policy Now Reducing US GDP Growth

(05 November 2021) Between Q2 2020 and Q1 2021, when the U.S. economy was struggling because of pandemic-related restrictions and high unemployment, an increase in government spending and tax cuts provided significant support to U.S. economic growth. However, after the fiscal stimulus programs ended in Q1 2021, the contribution of fiscal policy to U.S. GDP growth turned negative, according to the Hutchins Center Fiscal Impact Measure estimate.

  • The Hutchins Center estimates that in Q2 and Q3 2021, fiscal policy reduced U.S. real GDP growth by 2.2 and 2.4 percentage points respectively, mostly due to the end of supportive tax and benefits programs.
  • U.S. fiscal restraint is expected to continue in 2022 and 2023.

Definition: The Hutchins Center Fiscal Impact Measure (FIM) measures how much federal, state, and local tax and spending policy adds to or subtracts from overall economic growth. The FIM only measures the direct effects of fiscal policy and includes no multipliers.

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