Kenneth W Clements (UWA Business School, The University of Western Australia) Yihui Lan () (UWA Business School, The University of Western Australia) Xueyan Zhao (Department of Econometrics and Business Statistics, Monash University)
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This paper analyses consumption patterns of vice -- marijuana, tobacco and alcohol. To deal with imperfect marijuana data, we exploit the interdependencies in the consumption of the three drugs identified in prior research, and introduce a Monte Carlo simulation procedure to formally account for the inherent uncertainty in marijuana-related data and parameters. To illustrate the application of the framework, we use Australian data to simulate the impact on the consumption of vice of a reduction in the price of marijuana; changes in pre-existing taxes on tobacco and alcohol; legalisation of marijuana, which is then subject to taxation; and a tax tradeoff involving the introduction of a revenue-neutral tax on marijuana that is offset by reduced alcohol taxation. The revenue-maximising tax rate for marijuana of about 50% is estimated to yield additional revenue of about 15% of the pre-existing proceeds from vice taxation. The role of uncertainty surrounding marijuana is highlighted by providing the entire probability distributions of all endogenous variables in a consistent multivariate framework.
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Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number
06-30.
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Find related papers by JEL classification: H2 - Public Economics - - Taxation, Subsidies, and Revenue K0 - Law and Economics - - General I0 - Health, Education, and Welfare - - General D5 - Microeconomics - - General Equilibrium and Disequilibrium C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Frank J. Chaloupka & Kenneth E. Warner, 1999.
"The Economics of Smoking,"
NBER Working Papers
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[Downloadable!] (restricted)
Other versions:
Chaloupka, Frank J. & Warner, Kenneth E., 2000.
"The economics of smoking,"
Handbook of Health Economics,
in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 29, pages 1539-1627
Elsevier.
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