What is the economic impact of a government shutdown?

3 Financial markets and credit ratings

A third impact of a government shutdown is the potential volatility and risk in the financial markets and the credit ratings of the government. A shutdown can affect the liquidity and functioning of the Treasury market, which is the largest and most liquid bond market in the world. A shutdown can also raise doubts about the ability and willingness of the government to meet its debt obligations, especially if it coincides with the debt ceiling deadline. This can increase the borrowing costs and lower the credit ratings of the government, as well as the private sector that relies on the government's backing. For instance, in 2011, Standard & Poor's downgraded the U.S. sovereign credit rating from AAA to AA+ after a tense standoff over the debt ceiling that led to a brief shutdown.

4 Social welfare and public health

A fourth impact of a government shutdown is the disruption of social welfare and public health programs that depend on federal funding and oversight. A shutdown can affect the delivery and quality of essential services and benefits to millions of Americans, such as health care, nutrition, education, housing, and security. A shutdown can also impair the ability of the government to respond to emergencies and crises, such as natural disasters, pandemics, or terrorist attacks. For example, during the 2018-2019 shutdown, some federal agencies had to reduce or suspend their operations, such as the Food and Drug Administration, the Environmental Protection Agency, the National Park Service, and the Transportation Security Administration.

5 Global implications

A fifth impact of a government shutdown is the spillover effects on the global economy and the international relations of the U.S. A shutdown can weaken the role and reputation of the U.S. as the world's largest economy and a leader in global affairs. A shutdown can also affect the trade and financial flows between the U.S. and its partners, as well as the coordination and cooperation on various issues, such as security, diplomacy, and development. For example, during the 2018-2019 shutdown, some international events and meetings involving the U.S. were canceled or postponed, such as the World Economic Forum in Davos, the Asia-Pacific Economic Cooperation summit in Chile, and the NATO defense ministers meeting in Brussels.

6 Long-term consequences

A sixth impact of a government shutdown is the possible long-term consequences on the economic growth and productivity of the U.S. A shutdown can have lasting effects on the human and physical capital of the country, as well as the institutional and social fabric of the society. A shutdown can reduce the investment and innovation in public goods and infrastructure, such as research, education, transportation, and energy. A shutdown can also lower the morale and motivation of the federal workforce and the public trust and confidence in the government. A shutdown can also exacerbate the fiscal and political challenges that the U.S. faces, such as the rising debt, the aging population, and the polarization of the parties.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?