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Understanding the Relationship Between Changes to Federal Fiscal Policy and Near-Term Real GDP Growth: Working Paper 2025-01

Author

Listed:
  • Jaeger Nelson
  • Matthew Wilson

Abstract

We introduce two measures which highlight the relationship between changes in federal fiscal policy and economic growth. First, we conduct a growth decomposition exercise to compute the short-run direct effects of changes in policy on real GDP growth, which we call the Federal Fiscal Impulse (FFI). Second, we build on this measure to develop the Federal Fiscal Impulse Index (FFII) which interprets changes in the components of fiscal policy relative to the growth rate of real GDP over recent history. Finally, we project these measures through 2026 using CBO's June 2024

Suggested Citation

  • Jaeger Nelson & Matthew Wilson, 2025. "Understanding the Relationship Between Changes to Federal Fiscal Policy and Near-Term Real GDP Growth: Working Paper 2025-01," Working Papers 61171, Congressional Budget Office.
    • Handle: RePEc:cbo:wpaper:61171
    as

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    File URL: https://www.cbo.gov/system/files/2025-01/61171-GDP.pdf
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    References listed on IDEAS

    as
    1. Darrel Cohen & Glenn Follette, 2000. "The automatic fiscal stabilizers: quietly doing their thing," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 35-67.
    2. Sheila Campbell & Chad Shirley, 2021. "Fiscal Substitution in Spending for Highway Infrastructure: Working Paper 2021-13," Working Papers 57430, Congressional Budget Office.
    3. Christopher Carroll & Jiri Slacalek & Kiichi Tokuoka & Matthew N. White, 2017. "The distribution of wealth and the marginal propensity to consume," Quantitative Economics, Econometric Society, vol. 8(3), pages 977-1020, November.
    4. Tal Gross & Matthew J. Notowidigdo & Jialan Wang, 2020. "The Marginal Propensity to Consume over the Business Cycle," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(2), pages 351-384, April.
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    More about this item

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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