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Marijuana liberalization and public finance: A capital market perspective on the passage of medical use laws

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  • Cheng, Stephanie F.
  • De Franco, Gus
  • Lin, Pengkai

Abstract

We find that the staggered passage of state-level laws that legalize marijuana for medical use increases states' borrowing costs by 7–9 basis points. Consistent with economic theory on substance use suggesting that marijuana legalization increases local consumption of the drug (by expanding its availability and reducing its perceived risks), we predict and find that increased consumption represents an important mechanism that explains the higher state bond spreads. We also show that following such laws’ passage, states incur higher marijuana-consumption-related expenditures, including for police, corrections, and public welfare.

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  • Cheng, Stephanie F. & De Franco, Gus & Lin, Pengkai, 2023. "Marijuana liberalization and public finance: A capital market perspective on the passage of medical use laws," Journal of Accounting and Economics, Elsevier, vol. 75(1).
    • Handle: RePEc:eee:jaecon:v:75:y:2023:i:1:s0165410122000398
    DOI: 10.1016/j.jacceco.2022.101516
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    More about this item

    Keywords

    Marijuana; Public health; Public finance; Municipal bonds;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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