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The Budgetary Implications of Marijuana Legalization in Massachusetts
Jeffrey A. Miron
This report was prepared in response to a request from Change the Climate. Dan Egan provided excellent research assistance.
Government prohibition of marijuana is the subject of ongoing debate. Advocates of this policy believe prohibition reduces marijuana trafficking and use, thereby discouraging crime, improving productivity and increasing health. Critics of this policy believe prohibition has only modest effects on trafficking and use while contributing to many problems often attributed to marijuana itself.
One issue in this debate
is the effect of marijuana prohibition on government budgets. Prohibition entails
direct enforcement costs, and prohibition prevents taxation of marijuana production
and sale. If marijuana were legal, enforcement costs would be zero and governments
could levy taxes on the production and sale of marijuana. Thus, government expenditure
would decline and tax revenue would increase. A key question is the magnitude
of these budgetary impacts.
The policy change analyzed here is more substantial than marijuana decriminalization, under which governments repeal criminal penalties against possession but retain them against trafficking. The budgetary implications of legalization exceed those of decriminalization for three reasons. First, legalization eliminates arrests for trafficking in addition to eliminating arrests for possession. Second, legalization saves prosecutorial, judicial, and incarceration expenses; these are minimal in the case of decriminalization. Third, legalization allows taxation of the marijuana trade, assuming federal policy accommodates this goal.
This report concludes
that legalization of marijuana in Massachusetts would produce an annual savings
in state and local expenditure of about $120.6 million while generating tax
revenue of at least $16.9 million. These estimates necessarily rely on assumptions
in cases where appropriate data are not available. But in most instances these
assumptions bias the estimated effects downward, so the actual costs savings
and revenue gains are plausibly higher than suggested here.
The remainder of the report is organized as follows. Section II addresses the expenditure savings that would occur in Massachusetts as the result of marijuana legalization. Section III analyses the tax revenues that Massachusetts would collect if it legalized marijuana and taxed marijuana similarly to other goods. Section IV concludes.
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