Fiscal Shocks, Local Projections, and the Macroeconomic Payoff of “One Big Beautiful Bill”

This paper examines how discretionary U.S. fiscal policy episodes since 1975 influence macroeconomic outcomes and financial conditions, with an application to forecasting the short-term effects of a comprehensive package, such as “One Big Beautiful Bill”. An episode-based quarterly fiscal shock series is constructed from observable policy outlays scaled by nominal GDP, and dynamic responses are estimated using a local projection framework across multiple horizons. The results show a front-loaded pattern: output responds strongly to impact, remains positive in the next quarter, and then reverses as one-time transfers dissipate and payback dynamics emerge. When the target variable is replaced with financial indicators, the results reveal that while consumption growth rises immediately and then tapers off rapidly, the federal funds rate and bank lending rates decline in the aftermath of large transfer episodes—consistent with easing financial conditions during stimulus periods. Overall, the results suggest that OBBBA-like programs are most effective for quick stabilization, but to keep the benefits functioning, persistence mechanisms should be incorporated within.