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The Economy Gets a Boost From Government

State and local spending is finally adding to GDP growth.
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Photographer: Luke Sharrett/Bloomberg

Since the end of World War II, government spending has been a steady contributor to the U.S. economy, accounting for an average of 20 percent of total gross domestic product. But for most of this recovery, the economy has been missing its government partner.

Although the $840 billion stimulus plan helped soften the immediate blow of the financial crisis, by mid-2010 its effects had faded. Lower tax revenue at the state and local levels, combined with the $1.2 trillion in automatic federal spending cuts known as the sequester, shifted government fiscal policy across the U.S. into belt-tightening mode. Along with the drawdown of military operations in Iraq and Afghanistan, lower government spending reduced GDP growth by a total of 7 percentage points from 2010 to 2014, according to the Bureau of Economic Analysis.