What happened to Illinois' economy following the January 2011 tax increases?

February 3, 2014

What happened to Illinois' economy following the January 2011 tax increases?

A Midwestern Comparison


How did Illinois’ economic activity change after January 2011? Using several years of data compiled by the U.S. Bureau of Labor Statistics (BLS), The Fiscal Futures Project examines three indicators of economic activity: employment, the unemployment rate, and average weekly earnings. Despite Chicago’s stature as a global city, Illinois’ economy is still closely linked to its regional (Midwestern) neighbors. Illinois sells many services (especially business services such as accounting and legal services) to these states, and it purchases many good and services from these states. These states compete in the same labor market and are buffeted by similar economic winds. Thus, after the January 2011 tax increase, it is reasonable to compare Illinois’ economic performance relative to its Midwest neighbors. The authors use a very simple device to do that here—they collected data on Illinois and on the rest of the Midwest (ROM) and compared Illinois’ performance relative to its Midwest neighbors after January 2011, i.e. the date of Illinois’ tax increase, to its relative performance prior to that time. During the months after January 2011, no other Midwest states implemented broad-based increases in their tax rates as Illinois did (in fact, some states cut their rates during this time). The performance of both Illinois and ROM at other time points is measured relative to their level in January 2011.


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Research Area: Fiscal and Economic Policy

Policy Initiative: none