Fiscal Policy Gives the Economy a Boost

Fiscal Policy Gives the Economy a Boost

REUTERS/Fred Clingerman-Lockheed Martin/Handout

Federal, state and local fiscal policies boosted GDP growth by 0.6 percentage points in the second quarter, according to an analysis by the Hutchins Center on Fiscal & Monetary Policy at the Brookings Institution. 

Hutchins’ “fiscal impact measure,” which tracks the contribution made by fiscal policies to economic growth, shows a significant upturn over the last three quarters, following several quarters in which fiscal policy was providing little help. The measure fell below zero in 2011, kicking off a four-year period in which fiscal policies actually pushed growth below trend.

Federal spending was a big contributor to growth in the second quarter of 2018, rising 3.5 percent, with much of that increase related to defense. Spending on Social Security, Medicare and Medicaid increased moderately, while state and local spending grew by 1.5 percent.