Abstract Previous literature has explored the effects of economic conditions on voting behavior. In this article, I analyze how the economy affects legislative polarization. Using recently available state legislator ideal point estimates, I find a strong negative relationship between state economic activity and political polarization. States that fared worse economically have experienced greater increases in legislative polarization. I show this relationship is causal by employing an instrumental variables strategy. The instrument isolates exogenous variation in state economic activity by exploiting time-series variation in oil prices, which differentially affects individual states according to their economic dependence on oil production. The estimated polarization effects are stronger for Republicans. The findings have implications for understanding the interaction between the economy and political outcomes. (JEL H7, H83).