Government Shutdown Threatens US Economy: CBO Warns

Economic Effects of Government Shutdown

The Congressional Budget Office (CBO) of the United States has announced that the cost of a federal government shutdown could rise to 14 billion dollars depending on its duration. The CBO published an analysis detailing the economic impacts of the government shutdown due to the current budget dispute. The analysis emphasized that the government shutdown would delay Federal expenditures and thus negatively affect overall economic activity.

Structuring the Effects

The analysis examines the impacts on GDP if the government shutdown lasts for 4, 6, or 8 weeks. In these three scenarios, the negative effects of the government shutdown on Gross Domestic Product (GDP) are addressed in a broad framework. In particular, it is predicted that GDP will decrease by 1 to 2 points in the fourth quarter due to the shutdown.

Effects on Federal Employees

The government shutdown can have serious economic consequences, especially for federal employees. According to CBO estimates, the economic loss caused by the time federal employees are on leave will be felt by the end of 2026. For example, a 4-week shutdown could lead to a loss of 7 billion dollars, a 6-week shutdown could result in a loss of 11 billion dollars, and an 8-week shutdown could lead to a total loss of 14 billion dollars.

Process of Federal Government Shutdown

The reason the government has been closed since October 1st in the U.S. is the budget dispute between Republicans and Democrats. After the start of the new fiscal year, Congress failed to approve a temporary budget bill, causing the federal government to lose its spending authority and halt activities except for essential services. Public employees placed on unpaid leave can only receive their salaries once a new budget is approved.