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Understanding the Relationship Between Changes to Federal Fiscal Policy and Near‐Term Real GDP Growth

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  • 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 baseline and discuss the measures' benefits and limitations.

Suggested Citation

  • Jaeger Nelson & Matthew Wilson, 2025. "Understanding the Relationship Between Changes to Federal Fiscal Policy and Near‐Term Real GDP Growth," Public Budgeting & Finance, Wiley Blackwell, vol. 45(1), pages 57-69, March.
    • Handle: RePEc:bla:pbudge:v:45:y:2025:i:1:p:57-69
    DOI: 10.1111/pbaf.12391
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