The effect of Cannabis legalization on substance demand and tax revenues Keaton Miller and Boyoung Seo
By: Miller, Keaton
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Contributor(s): Seo, Boyoung.
Material type: 
ArticlePublisher: 2021Subject(s): IMPUESTOS | ESTUPEFACIENTES | INGRESOS FISCALES | ESTADOS UNIDOS | MODELOS ECONOMETRICOS
In:
National Tax Journal v. 74, n. 1, March 2021, p. 107-145Summary: Cannabis advocates argue that legalization will increase tax revenues. However, if legal substances are substitutes, cannabis revenues may cannibalize other taxes. We document substitution between legal cannabis products and alcohol and tobacco products using detailed administrative and scanner data from Washington State. We estimate a flexible demand system for legal substances and find legalizing cannabis leads to a 15 percent decrease in alcohol, mainly by liquor and wine, and 5 percent decrease in cigarette demand. Approximately 40 percent of Washington’s 2015 cannabis revenue was cannibalized from preexisting sources. We find that Washington’s current substance taxes, even after accounting for substitution, are on the upward-sloping side of the Laffer curve.
| Item type | Current location | Home library | Call number | Status | Date due | Barcode |
|---|---|---|---|---|---|---|
| Artículos | IEF | IEF | OP 233/2021/1-4 (Browse shelf) | Available | OP 233/2021/1-4 |
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Cannabis advocates argue that legalization will increase tax revenues. However, if legal substances are substitutes, cannabis revenues may cannibalize other taxes. We document substitution between legal cannabis products and alcohol and tobacco products using detailed administrative and scanner data from Washington State. We estimate a flexible demand system for legal substances and find legalizing cannabis leads to a 15 percent decrease in alcohol, mainly by liquor and wine, and 5 percent decrease in cigarette demand. Approximately 40 percent of Washington’s 2015 cannabis revenue was cannibalized from preexisting sources. We find that Washington’s current substance taxes, even after accounting for substitution, are on the upward-sloping side of the Laffer curve.
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