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The Taxation of Recreational Marijuana: Evidence from Washington State

Listed author(s):
  • Benjamin Hansen
  • Keaton Miller
  • Caroline Weber

The median United States voter supports the legalization of marijuana, at least in part due to a desire to increase state tax revenues. However, states with legal markets have implemented wildly different regulatory schemes with tax rates ranging from 3.75 to 37 percent, indicating that policy makers have a range of beliefs about industry responses to taxes and regulation. We examine a policy reform in Washington: a switch from a 25 percent gross receipts tax collected at every step in the supply chain to a sole 37 percent excise tax at retail. Using novel, comprehensive administrative data, we assess responses to the reform throughout the supply and consumption chain. We find the previous tax regime provided strong incentives for vertical integration. Tax invariance did not hold, with some types of firms benefiting much more than predicted. Consumers bear 44 percent of the additional retail tax burden. Finally, we find evidence that consumer demand for marijuana is price-inelastic in the short-run, but becomes price-elastic within a few weeks of a price increase.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 23632.

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Date of creation: Jul 2017
Handle: RePEc:nbr:nberwo:23632
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  11. Testa, William A. & Mattoon, Richard H., 2007. "Is There a Role for Gross Receipts Taxation?," National Tax Journal, National Tax Association, vol. 60(4), pages 821-840, December.
  12. Frank J. Chaloupka & Michael Grossman & Warren K. Bickel & Henry Saffer, 1999. "Introduction to "The Economic Analysis of Substance Use and Abuse: An Integration of Econometrics and Behavioral Economic Research"," NBER Chapters,in: The Economic Analysis of Substance Use and Abuse: An Integration of Econometrics and Behavioral Economic Research, pages 1-14 National Bureau of Economic Research, Inc.
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