Data Indicate COVID-19 Impact on State Revenue Not as Severe as Feared

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.