|Abstract:||We examine Illinois state revenue impacts to date from the COVID-19 pandemic and associated mitigation measures. Unlike other estimates, which have been model based and prospective, we retrospectively model revenue receipts throughout the early months of the pandemic. Using an interrupted-time-series model within an event-study framework, we find significant negative revenue impacts in the early months of the crisis, followed by neutral and even positive revenue impacts in the later months. Overall, the state lost just over $2 billion in revenues in April and May. The main part of the revenue effects during this period was due to losses in state individual income taxes caused by the delayed tax filing deadline, although sales taxes and corporate income tax losses were seen. Then, starting in July, as virus cases abated and large parts of the economy reopened, the state recovered $1.2 billion in revenue. Much of that came from the new tax filing deadline in July, but some appears to be generated by increased economic activity during that time. Overall, the state’s estimated revenue loss of $800 billion is much smaller than was modeled earlier in the pandemic, and smaller than the discussion in the media and political circles was portraying. In the conclusion of the paper, we discuss risks to future state revenues and implications of our findings for state fiscal policy moving forward. The year 2020 proved to be one of the most volatile and destructive years in history. Not since the Spanish flu pandemic of 1918–1919 has the world seen the level of negative health, economic, and financial consequences witnessed last year. Although only one of many important consequences, state and local government finances suffered heavily under the weight of people self-isolating to avoid becoming ill, and from efforts to mitigate the spread of the virus imposed by state governments.
Illinois became one of the first states to enact a shelter-in place order in late March. Even before that, high-frequency economic indicators suggested that people were starting to restrict activities to only those essential for sustaining life.