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CBO's Latest Scorecard for the Stimulus

ARRA increased GDP, employment but total budget deficits now projected at $44 billion higher than original estimate.

The American Recovery and Reinvestment Act will increase budget deficits by $831 billion between fiscal years 2009 and 2019, according to the latest quarterly report from the Congressional Budget Office. That is $44 billion higher than the original estimate by CBO and the staff of the Joint Committee on Taxation.

The $787 billion legislation, variously known as the stimulus or the recovery act, was signed into law in February 2009 and provided tax incentives and support for healthcare, education, unemployment programs and various other programs designed to maintain or increase employment and keep the economy from plunging into a depression.

CBO said more than half of ARRA's impact occurred in fiscal year 2010 and 90% of its impact was realized by the end of December 2011.

Using reports from recipients of ARRA funds, evidence about the effects of previous policies and various mathematical models, CBO found that in the fourth quarter of 2011, ARRA's policies resulted in:

  • Raising real (inflation-adjusted) gross domestic product by between 0.2% and 1.5%.
  • Lowering the unemployment rate by between 0.2% and 1.1%.
  • Increasing the number of people employed by between 300,000 to 2 million.
  • Increasing the number of full-time equivalent jobs by between 400,000 to 2.6 million. This includes shifts from part-time to full-time work or overtime.

While CBO noted that the effects of ARRA are waning, it estimates that the stimulus legislation will raise real GDP in 2012 by 0.1% to 0.8% and will increase the number of people employed this year by 200,000 to 1.1 million.

Looking at the long-term effects of the stimulus, CBO estimates that ARRA will reduce output by between zero and 0.2% after 2016. The agency expects the stimulus will have no long-term effects on employment "because the U.S. economy will have a a high rate of use of its labor resources in the long run."

CBO explained that ARRA's long-term impact on the economy was mainly due to the increase in government debt, which tends to "reduce the stock of productive private capital." CBO estimates that each dollar of additional debt "crowds out about a third of a dollar's worth of private domestic capital." But CBO noted considerable uncertainty in projecting these long-term impacts, explaining that ARRA's funding for roads and highways, for example, could add to the economy's potential output.

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