Archive for the ‘Government Finance’ Category

I just got done reading an article by The Economist (http://www.economist.com/node/16591136), and it got me thinking.

The article was about legalizing or simply decriminalizing marijuana consumption in California.

It was interesting to me because of how it could affect the economy.  In the article, the RAND Corporation predicted that the retail price of an ounce of marijuana would decrease by 80%.  This decrease can mean many different things.  It would be very bad for business for dealers and distributors because of the loss of revenues.  I recently started watching the Showtime show Weeds, and this point was further reinforced when Nancy’s distributor Heylia expressed disdain for legalization or decriminalization.

Another less obvious point that comes from this decrease in retail price is the ability of governments to tax purchases of marijuana.  If the retail prices does in fact decrease by 80%, then that is all the room government has to tax the marijuana without distorting consumer behaviors.  Furthermore, they would still have the room to levy a tax that would still make the price lower than when it was illegal, which could increase consumption, and thereby increasing tax revenues.

I am not an expert on tax policy, but these points are definitely something for policymakers to consider when dealing with near bankrupt state governments.

Of course, as many economists and analysts have stated before, legalization could decrease crime because of the elimination of marijuana’s black market.  Furthermore, cost to government to incarcerate “criminals” would decrease.

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