Fiscal Policy Cushioned the Shutdown: Report

Fiscal Policy Cushioned the Shutdown: Report

Dado Ruvic

Taxing and spending policies provided a huge boost to the economy during the first few months of the coronavirus pandemic, according to the newly updated Hutchins Center Fiscal Impact Measure (FIM) from the Brookings Institution.

Fiscal policy increased GDP growth by 14.6% on an annualized basis during the second quarter of 2020, Brookings’ David Wessel said, providing a substantial cushion for an economy that contracted at an annualized rate of 32.9%.

The data illustrate “how much worse the decline would have been if not for federal fiscal policy,” Wessel said, adding that the second quarter saw “the highest level of the FIM since 1973, the earliest year for which we have data.”

Federal policies provided the main boost, with a decline in state and local purchases acting as a drag, holding down GDP by 8.6%. Stimulus payments and expanded unemployment benefits played a key role, as well as standard automatic stabilizers such as food stamps.