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Costs of Marijuana Prohibition: Economic Analysis

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The Budgetary Implications of Marijuana Prohibition

June 2005

Jeffrey A. Miron

Visiting Professor of Economics

Harvard University

Cambridge, MA 02138

781-856-0086

miron@fas.harvard.edu


The Marijuana Policy Project provided funding for the research discussed in this report. Daniel Egan provided excellent research assistance.

Executive Summary

  • Government prohibition of marijuana is the subject of ongoing debate.
  • One issue in this debate is the effect of marijuana prohibition on government budgets. Prohibition entails direct enforcement costs and prevents taxation of marijuana production and sale.
  • This report examines the budgetary implications of legalizing marijuana – taxing and regulating it like other goods – in all fifty states and at the federal level.
  • The report estimates that legalizing marijuana would save $7.7 billion per year in government expenditure on enforcement of prohibition. $5.3 billion of this savings would accrue to state and local governments, while $2.4 billion would accrue to the federal government.
  • The report also estimates that marijuana legalization would yield tax revenue of $2.4 billion annually if marijuana were taxed like all other goods and $6.2 billion annually if marijuana were taxed at rates comparable to those on alcohol and tobacco.
  • Whether marijuana legalization is a desirable policy depends on many factors other than the budgetary impacts discussed here. But these impacts should be included in a rational debate about marijuana policy.

I. Introduction

Government prohibition of marijuana is the subject of ongoing debate. Advocates believe prohibition reduces marijuana trafficking and use, thereby discouraging crime, improving productivity and increasing health. Critics believe prohibition has only modest effects on trafficking and use while causing many problems typically 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 negligible and governments could levy taxes on the production and sale of marijuana. Thus, government expenditure would decline and tax revenue would increase.

This report estimates the savings in government expenditure and the gains in tax revenue that would result from replacing marijuana prohibition with a regime in which marijuana is legal but taxed and regulated like other goods. The report is not an overall evaluation of marijuana prohibition; the magnitude of any budgetary impact does not by itself determine the wisdom of prohibition. But the costs required to enforce prohibition, and the transfers that occur because income in a prohibited sector is not taxed, are relevant to rational discussion of this policy.

The policy change considered in this report, marijuana legalization, is more substantial than marijuana decriminalization, which means repealing criminal penalties against possession but retaining them against trafficking. The budgetary implications of legalization exceed those of decriminalization for three reasons.[1] First, legalization eliminates arrests for trafficking in addition to eliminating arrests for possession. Second, legalization saves prosecutorial, judicial, and incarceration expenses; these savings are minimal in the case of decriminalization. Third, legalization allows taxation of marijuana production and sale.

This report concludes that marijuana legalization would reduce government expenditure by $7.7 billion annually. Marijuana legalization would also generate tax revenue of $2.4 billion annually if marijuana were taxed like all other goods and $6.2 billion annually if marijuana were taxed at rates comparable to those on alcohol and tobacco. These budgetary impacts rely on a range of assumptions, but these probably bias the estimated expenditure reductions and tax revenues downward.

The remainder of the report proceeds as follows. Section II estimates state and local expenditure on marijuana prohibition. Section III estimates federal expenditure on marijuana prohibition. Section IV estimates the tax revenue that would accrue from legalized marijuana. Section V discusses caveats and implications.

II. State and Local Expenditure for Drug Prohibition Enforcement

The savings in state and local government expenditure that would result from marijuana legalization consists of three main components: the reduction in police resources from elimination of marijuana arrests; the reduction in prosecutorial and judicial resources from elimination of marijuana prosecutions; and the reduction in correctional resources from elimination of marijuana incarcerations.[2] There are other possible savings in government expenditure from legalization, but these are minor or difficult to estimate with existing data.[3] The omission of these items biases the estimated savings downward.

To estimate the state savings in criminal justice resources, this report uses the following procedure. It estimates the percentage of arrests in a state for marijuana violations and multiplies this by the budget for police. It estimates the percentage of prosecutions in a state for marijuana violations and multiplies this by the budget for prosecutors and judges. It estimates the percentage of incarcerations in a state for marijuana violations and multiplies this by the budget for prisons. It then sums these components to estimate the overall reduction in government expenditure. Under plausible assumptions, this procedure yields a reasonable estimate of the cost savings from marijuana legalization.[4]

The Police Budget Due to Marijuana Prohibition

The first cost of marijuana prohibition is the portion of state police budgets devoted to marijuana arrests.

Table 1 calculates the fraction of arrests in each state due to marijuana prohibition. Column 1 gives the total number of arrests for the year 2000.[5] Column 2 gives the number of arrests for marijuana possession violations. Column 3 gives the number of arrests for marijuana sale/manufacturing violations. Columns 4 and 5 give the ratio of Column 2 to Column 1 and Column 3 to Column 1, respectively; these are the percentages of arrests for possession and sale/manufacture of marijuana, respectively.

The information in Columns 4 and 5 is what is required in the subsequent calculations, subject to one modification. Some arrests for marijuana violations, especially those for possession, occur because the arrestee is under suspicion for a non-drug crime but possesses marijuana that is discovered by police during a routine search. This means an arrest for marijuana possession is recorded, along with, or instead of, an arrest on the other charge. If marijuana possession were not a criminal offense, the suspects in such cases would still be arrested on the charge that led to the search, and police resources would be used to approximately the same extent as when marijuana possession is criminal.[6]

In determining which arrests represents a cost of marijuana prohibition, therefore, it is appropriate to count only those that are “stand-alone,” meaning those in which a marijuana violation rather than some other charge is the reason for the arrest. This issue arises mainly for possession rather than for trafficking. There are few hard data on the fraction of “stand-alone” possession arrests, but the information in Miron (2002) and Reuter, Hirschfield and Davies (2001) suggests it is between 33% and 85%.[7] To err on the conservative side, this report assumes that 50% of possession arrests are due solely to marijuana possession rather than being incidental to some other crime. Thus, the resources utilized in making these arrests would be available for other purposes if marijuana possession were legal. Column 6 of Table 1 therefore indicates the fraction of possession arrests attributable to marijuana prohibition, taking this adjustment into account.[8]

The first portion of Table 2 uses this information to calculate the police budget due to marijuana prohibition in each state. Column 1 gives the total expenditure in 2000 on police, by state. Column 2 gives the product of Column 1 with the sum of Columns 5 and 6 from Table 1. This is the amount spent on arrests for marijuana violations. For 2000, the amount is $1.71 billion.

The Judicial and Legal Budget Due to Marijuana Prohibition

The second main cost of marijuana prohibition is the portion of the prosecutorial and judicial budget devoted to marijuana prosecutions. A reasonable indicator of this percentage is the fraction of felony convictions in state courts for marijuana offenses. Data on this percentage are not available on a state-by-state basis, so this report uses the national percentage. Data on the percentage of possession convictions attributable to marijuana are also not available, so this report assumes it equals the percentage for trafficking convictions.

In 2000 the percent of felony convictions in state courts due to any type of trafficking violation was 22.0%.[9] Of this total, 2.7% was due to marijuana, 5.9% was due to other drugs, and 13.4% was unspecified. This report assumes that the fraction of marijuana convictions in the unspecified category equals the fraction for those in which a specific drug is given, or 31.4% [=2.7%/(2.7%+5.9%)]. The report also assumes that the percentage of possession convictions due to marijuana equals this same fraction. These assumptions jointly imply that the percentage of felony convictions due to marijuana equals the fraction of felony convictions due to any drug offense (34.6%) multiplied by the percentage of trafficking violations due to marijuana (31.4%). This yields 10.9% (=34.6%*31.4%).[10]

The second portion of Table 2 uses this information to calculate the judicial and legal budget due to marijuana prohibition. Column 3 gives the judicial and legal budget, by state. Column 4 gives the product of Column 3 and 10.9%, the percentage of felony convictions due to marijuana violations. This is the judicial and legal budget due to marijuana prosecutions. For 2000, the amount is $2.94 billion.

The Corrections Budget Due to Marijuana Prohibition

The third main cost of marijuana prohibition is the portion of the corrections budget devoted to incarcerating marijuana prisoners. A reasonable indicator of this portion is the fraction of prisoners incarcerated for marijuana offenses.

As with the percentage of prosecutions due to marijuana, state-by-state information on the percentage of prisoners incarcerated for marijuana offenses is not available. Appropriate data do exist for a few states, however, and this percentage is likely to be similar across states. This report therefore computes a population-weighted average based on the few states for which data exist; it then imposes this percentage on all states. This percentage is 1.0%, as documented in Appendix A.

The third portion of Table 2 calculates the corrections budget due to marijuana prohibition.[11] Column 5 gives the overall corrections budget, by state. Column 6 gives the product of Column 5 and 1.0%, the estimated fraction of prisoners incarcerated on marijuana charges. This is the corrections budget devoted to marijuana prisoners. For 2000, the amount is $484 million.

Overall State and Local Expenditure for Enforcement of Marijuana Prohibition

As shown at the bottom of Table 2, total state and local government expenditure for enforcement of marijuana prohibition was $5.1 billion for 2000. This is an overstatement of the savings in government expenditure that would result from legalization, however, for two reasons. First, under prohibition the police sometimes seize assets from those arrested for marijuana violations (financial accounts, cars, boats, land, houses, and the like), with the proceeds used to fund police and prosecutors.[12] Second, under prohibition some marijuana offenders pay fines, which partially offsets the expenditure required to arrest, convict and incarcerate these offenders. The calculations in Appendix B, however, show that this offsetting revenue has been at most $100 million per year in recent years at the state and local level. This implies a net savings of criminal justice resources from marijuana legalization of $5.0 billion in 2000. Adjusting for inflation implies savings of $5.3 billion in 2003.[13] [14] [15]

III. Federal Expenditure for Marijuana Prohibition Enforcement

This section estimates federal expenditure on marijuana prohibition enforcement. There are no data available on expenditure for marijuana interdiction per se; existing data report expenditure on interdiction of all drugs, without separately identifying expenditure aimed at marijuana versus other drugs. It is nevertheless possible to estimate the portion due to marijuana prohibition using the following procedure:

  1. Estimate federal expenditure for all drug interdiction;
  2. Estimate the fraction of this expenditure due to marijuana interdiction based on the fraction of federal prosecutions for marijuana;
  3. Multiply the first estimate by the second estimate.

This provides a reasonable estimate of federal expenditure for marijuana interdiction so long as this expenditure is roughly proportional to the variable being used to determine the fraction of total interdiction devoted to marijuana.[16]

Table 3 displays federal expenditure for drug interdiction. This was $13.6 billion in 2002 (Miron 2003b), and it is the figure that applies for all drugs.[17] [18] [19] To determine expenditure for marijuana interdiction, it is necessary to adjust for the fraction of federal expenditure devoted to marijuana as opposed to other drugs.

Table 3 next shows possible indicators of the relative magnitude of marijuana interdiction as compared to other-drug interdiction. These indicators include use rates, arrest rates, and felony convictions for marijuana versus other drugs. For the purposes here, the most appropriate indicator is the percentage of DEA arrests or convictions for marijuana as opposed to other drugs.[20]

The data therefore indicate that $2.6 billion is a reasonable estimate of the federal government expenditure to enforce marijuana prohibition in 2002.

As with state and local revenue, this figure must be adjusted downward by the revenue from seizures and fines. Appendix B indicates that this amount has been at most $214.2 million in recent years, implying a net savings of about $2.39 million. Adjusting for inflation implies federal expenditure for enforcement of marijuana prohibition of $2.4 billion in 2003.[21]

IV. The Tax Revenue from Legalized Marijuana

In addition to reducing government expenditure, marijuana legalization would produce tax revenue from the legal production and sale of marijuana. To estimate this revenue, this report employs the following procedure. First, it estimates current expenditure on marijuana at the national level. Second, it estimates the expenditure likely to occur under legalization. Third, it estimates the tax revenue that would result from this expenditure based on assumptions about the kinds of taxes that would apply to legalized marijuana. Fourth, it provides illustrative calculations of the portion of the revenue that would accrue to each state.

Expenditure on Marijuana under Current Prohibition

The first step in determining the tax revenue under legalization is to estimate current expenditure on marijuana. ONDCP (2001a, Table 1, p.3) estimates that in 2000 U.S. residents spent $10.5 billion on marijuana. This estimate relies on a range of assumptions about the marijuana market, and modification of these assumptions might produce a higher or lower estimate. There is no obvious reason, however, why alternative assumptions would imply a dramatically different estimate of current expenditure on marijuana. This report therefore uses the $10.5 billion figure as the starting point for the revenue estimates presented below.

Expenditure on Marijuana under Legalization

The second step in estimating the tax revenue that would occur under legalization is to determine how expenditure on marijuana would change as the result of legalization. A simple framework in which to consider various assumptions is the standard supply and demand model. To use this model to assess legalization’s impact on marijuana expenditure, it is necessary to state what effect legalization would have on the demand and supply curves for marijuana.

This report assumes there would be no change in the demand for marijuana.[22] This assumption likely errs in the direction of understating the tax revenue from legalized marijuana, since the penalties for possession potentially deter some persons from consuming. But any increase in demand from legalization would plausibly come from casual users, whose marijuana use would likely be modest. Any increase in use might also come from decreased consumption of alcohol, tobacco or other goods, so increased tax revenue from legal marijuana would be partially offset by decreased tax revenue from other goods. And there might be a forbidden fruit effect from prohibition that tends to offset the demand decreasing effects of penalties for possession. Thus, the assumption of no change in demand is plausible, and it likely biases the estimated tax revenue downward.

Under the assumption that demand does not shift due to legalization, any change in the quantity and price would result from changes in supply conditions. There are two main effects that would operate (Miron 2003a). On the one hand, marijuana suppliers in a legal market would not incur the costs imposed by prohibition, such as the threat of arrest, incarceration, fines, asset seizure, and the like. This means, other things equal, that costs and therefore prices would be lower under legalization. On the other hand, marijuana suppliers in a legal market would bear the costs of tax and regulatory policies that apply to legal goods but that black market suppliers normally avoid.[23] This implies an offset to the cost reductions resulting from legalization. Further, changes in competition and advertising under legalization can potentially yield higher prices than under prohibition.

It is thus an empirical question as to how prices under legalization would compare to prices under current prohibition. The best evidence available on this question comes from comparisons of marijuana prices between the U.S. and the Netherlands. Although marijuana is still technically illegal in the Netherlands, the degree of enforcement is substantially below that in the U.S., and the sale of marijuana in coffee shops is officially tolerated. The regime thus approximates de facto legalization. Existing data suggest that retail prices in the Netherlands are roughly 50-100 percent of U.S. prices.[24] [25]

The effect of any price decline that occurs due to legalization depends on the elasticity of demand for marijuana. Evidence on this elasticity is limited because appropriate data on marijuana price and consumption are not readily available. Existing estimates, however, suggest an elasticity of at least -0.5 and plausibly more than -1.0 (Nisbet and Vakil 1972).[26] [27]

If the price decline under legalization is minimal, then expenditure will not change regardless of the demand elasticity. If the price decline is noticeable but the demand elasticity is greater than or equal to 1.0 in absolute value, then expenditure will remain constant or increase. If the price decline is noticeable and the demand elasticity is less than one, then expenditure will decline. Since the decline in price is unlikely to exceed 50% and the demand elasticity is likely at least -0.5, the plausible decline in expenditure is approximately 25%. Given the estimate of $10.5 billion in expenditure on marijuana under current prohibition, this implies expenditure under legalization of about $7.9 billion.[28]

Tax Revenue from Legalized Marijuana

To estimate the tax revenue that would result from marijuana legalization, it is necessary to assume a particular tax rate. This report considers two assumptions that plausibly bracket the range of reasonable possibilities.

The first assumption is that tax policy treats legalized marijuana identically to other goods. In that case tax revenue as a fraction of expenditure would be approximately 30%, implying tax revenue from legalized marijuana of $2.4 billion.[29] The amount of revenue would be lower if substantial home production occurred under legalization.[30] The evidence suggests, however, that the magnitude of such production would be minimal. In particular, alcohol production switched mostly from the black market to the licit market after repeal of Alcohol Prohibition in 1933.

The second assumption is that tax policy treats legalized marijuana similarly to alcohol or tobacco, imposing a “sin tax” in excess of any tax applicable to other goods.[31] Imposing a high sin tax can force a market underground, thereby reducing rather than increasing tax revenue. Existing evidence, however, suggests that relatively high rates of sin taxation are possible without generating a black market. For example, cigarette taxes in many European countries account for 75–85 percent of the price (US Department of Health and Human Services 2000).

One benchmark, therefore, is to assume that an excise tax on legalized marijuana doubles the price. If general taxation accounts for 30% of the price, this additional tax would then make tax revenue account for 80% of the price. This doubling of the price, given an elasticity of -0.5, would cause roughly a 50% increase in expenditure, implying total expenditure on marijuana would be $11.85 billion (=$7.9 x 1.5). Tax revenue would equal 80% of this total, or $9.5 billion. This includes any standard taxation applied to marijuana income as well as the sin tax on marijuana sales.

The $9.5 billion figure is not necessarily attainable given the characteristics of marijuana production, however. Small scale, efficient production is possible and occurs widely now, so the imposition of a substantial tax wedge might encourage a substantial fraction of the market to remain underground. The assumption of a constant demand elasticity in response to a price change of this magnitude is also debatable; more plausibly, the elasticity would increase as the price rose, implying a larger decline in consumption and thus less revenue from excise taxation. The $9.5 figure should therefore be considered an upper bound.

These calculations nevertheless indicate the potential for substantial revenue from marijuana taxation. A more modest excise tax, such as one that raises the price 50%, would produce revenue on legalized marijuana of $6.2 billion per year.

Distribution of the Marijuana Tax Revenue

The estimates of tax revenue discussed so far indicate the total amount that could be collected summing over all levels of government. In practice this total would be divided between state and federal governments. It is therefore useful to estimate how much revenue would accrue to each state, and to state governments versus the federal government, under plausible assumptions.

Table 4a indicates the tax revenue that would accrue to each state and to the federal government under the assumption that each state collected revenue equal to 10% of the income generated by legalized marijuana and the federal government collected income equal to 20%. This is approximately what occurs now for the economy overall, except that the ratio of tax revenues to income varies across states from the 10% figure assumed here. The table indicates that under these assumptions, the federal government would collect $1.6 billion in additional revenue while on average each state would collect $16 million in additional tax revenue.

These calculations ignore the fact that marijuana use rates differ across states, so application of identical policies would yield different amounts of revenue per capita. Wright (2002, Table A.4, p.82), for example, indicates that the percent of those 12 and over reporting marijuana use in the past month ranged in 1999-2000 from a low of 2.79% in Iowa to a high of 9.03% in Massachusetts. Table 4b therefore shows the breakdown of revenue by state under the assumption that tax revenue is proportional to state marijuana use rates. A third possibility, which cannot easily be examined with existing data, is that revenue by state differs depending on the distribution of marijuana production.

V. Summary

This report has estimated the budgetary implications of legalizing marijuana and taxing and regulating it like other goods. According to the calculations here, legalization would reduce government expenditure by $5.3 billion at the state and local level and by $2.4 billion at the federal level. In addition, marijuana legalization would generate tax revenue of $2.4 billion annually if marijuana were taxed like all other goods and $6.2 billion annually if marijuana were taxed at rates comparable to those on alcohol and tobacco.

References

Baicker, Katherine and Mireille Jacobson (2004), “Finders Keepers: Forfeiture Laws, Policing Incentives, and Local Budgets,” manuscript, Department of Economics, Dartmouth College.

Bates, Scott W. (2004), “The Economic Implications of Marijuana Legalization in Alaska,” Report for Alaskans For Rights & Revenues, Fairbanks, Alaska.

Caputo, Michael R. and Brian J. Ostrom (1994), “Potential Tax Revenue from a Regulated Marijuana Market: A Meaningful Revenue Source,” American Journal of Economics and Sociology, 53, 475-490.

Clements, Kenneth W. and Mert Daryal (2001), “Marijuana Prices in Australia in 1990s,” manuscript, Economic Research Centre, Department of Economics, The University of Western Australia.

Durose, Matthew and Patrick A. Langan (2003), Felony Sentences in State Courts, 2000, Bureau of Justice Statistics, Office of Justices Programs, U.S. Department of Justice, NCJ 198821.

Easton, Stephen T. (2004), “Marijuana Growth in British Columbia,” Public Policy Sources, Fraser Institute Occasional Paper #74.

European Monitoring Centre for Drugs and Drug Addiction (2002), Annual Report 2002, available at (http://annualreport.emcdda.eu.int/pdfs/2002_0458_EN.pdf).

Gettman, Jon B. and Stephen S. Fuller (2003), “Estimation of the Budgetary Costs of Marijuana Possession Arrests in the Commonwealth of Virginia,” Center for Regional Analysis, George Mason University.

Harrison, Lana D., Michael Backenheimer, and James A. Inciardi (1995), “Cannabis use in the United States: Implications for Policy,” in Peter Cohen and Arjan Sas, eds., Cannabisbeleid in Duitsland, Frankrijk en do Verenigde Staten, Amerstdamn: Centrum voor Drugsonderzoek, Universiteit van Amsterdamn, 231-236.

Lewis, Minchin (2004), Report on the Syracuse Police Department Activity for the Year Ended June 30, 2002, Department of Audit, City of Syracuse.

MacCoun, Robert and Peter Reuter (1997), “Interpreting Dutch Cannabis Policy: Reasoning by Analogy in the Legalization Debate,” Science, 278, 47-52.

Miron, Jeffrey A. (2002), “The Effect of Marijuana Decriminalization on the Budgets of Massachusetts Governments, With a Discussion of Decriminalization’s Effect on Marijuana Use,” Report to the Drug Policy Forum of Massachusetts, October.

Miron, Jeffrey A. (2003a), “Do Prohibitions Raise Prices? Evidence from the Markets for Cocaine and Heroin,” Review of Economics and Statistics, 85(3), 522-530.

Miron, Jeffrey A. (2003b), “A Critique of Estimates of the Economic Costs of Drug Abuse,” Report to the Drug Policy Alliance, July.

Miron, Jeffrey A. (2003c), “The Budgetary Implications of Marijuana Legalization in Massachusetts,” Report to Change the Climate, August.

Murphy, Patrick, Lynn E. Davis, Timothy Liston, David Thaler, and Kathi Webb (2000), Improving Anti-Drug Budgeting: Santa Monica, CA: Rand.

Nisbet, Charles T. and Firouz Vakil (1972), “Some Estimates of Price and Expenditure Elasticites of Demand for Marijuana Among U.C.L.A. Students,” Review of Economics and Statistics, 54, 473-475.

Office of National Drug Control Policy (1993), State and Local Spending on Drug Control Activities, Washington, D.C.: ONDCP

Office of National Drug Control Policy (2001a), What America’s Users Spend on Illegal Drugs, Cambridge, MA: Abt Associates.

Office of National Drug Control Policy (2001b), The Price of Illicit Drugs: 1981 through Second Quarter of 2000, Washington, D.C: Abt Associates.

Office of National Drug Control Policy (2002), National Drug Control Strategy, Washington, D.C.: ONDCP.

Pacula, Rosalie Liccardo, Michael Grossman, Frank J. Chaloupka, Patrick M. O’Malley, Lloyd D. Johnston, and Matthew C. Farrelly (2000), “Marijuana and Youth,” NBER WP #7703.

Reuter, Peter, Paul Hirschfield, and Curt Davies (2001), “Assessing the Crack-Down on Marijuana in Maryland,” manuscript, University of Maryland.

Schwer, R. Keith, Mary Riddel, and Jason Henderson (2002), “Fiscal Impact of Question 9: Potential State-Revenue Implications,” Center for Business and Economic Research, University of Nevada, Las Vegas.

US Department of Health and Humans Services (2000), Reducing Tobacco Use: A Report of the Surgeon General, Tobacco Taxation Fact Sheet. Accessed at

http://www.cdc.gov/tobacco/sgr/sgr_2000/factsheets/factsheets_taxation.htm.

U.S. Department of Health and Human Services (2004), Treatment Episode Data Set (TEDS) Highlights – 2002, Washington, D.C.: Substance Abuse and Mental Health Services Administration, Office of Applied Statistics.

Wright, D. (2002), State Estimates of Substance Use from the 2000 National Household Survey on Drug Abuse: Volume I, Findings (DHHS Publication No. SMA 02-3731, NHSDA Series H-15), Rockville, MD: Substance Abuse and Mental Health Services Administration, Office of Applied Statistics.


Table 1: Percentage of Arrests Due to Marijuana Prohibition



Total Arrests


MJ Possession


MJ Sale/Man.


Poss %


S/M %


Poss % /2


1


2


3


4


5


6


Alabama


215587


11501


258


0.053


0.001


0.027


Alaska


40181


1239


200


0.031


0.005


0.015


Arizona


304142


16288


1233


0.054


0.004


0.027


Arkansas


218521


6846


928


0.031


0.004


0.016


California


1428248


50149


12338


0.035


0.009


0.018


Colorado


282787


12067


604


0.043


0.002


0.021


Connecticut


146992


6751


773


0.046


0.005


0.023


Delaware


41515


2151


131


0.052


0.003


0.026


D.C.*


4009


32


0


0.008


0.000


0.004


Florida*


0


0


0


0.043


.006


0.022


Georgia


429674


24321


4093


0.057


0.010


0.028


Hawaii


64463


1110


167


0.017


0.003


0.009


Idaho


76032


2949


219


0.039


0.003


0.019


Illinois*


319920


0


0


0.043


0.006


0.000


Indiana


270022


14484


1806


0.054


0.007


0.027


Iowa


113394


6054


551


0.053


0.005


0.027


Kansas


78285


3277


594


0.042


0.008


0.021


Kentucky*


160899


10669


1188


0.066


0.007


0.033


Louisiana


297098


14941


2526


0.050


0.009


0.025


Maine


57203


3294


554


0.058


0.010


0.029


Maryland


318056


17113


2711


0.054


0.009


0.027


Massachusetts


160342


8975


1365


0.056


0.009


0.028


Michigan


413174


14629


2050


0.035


0.005


0.018


Minnesota


269010


9325


6782


0.035


0.025


0.017


Mississippi


202007


9925


1054


0.049


0.005


0.025


Missouri


322775


13202


1338


0.041


0.004


0.020


Montana


30396


384


35


0.013


0.001


0.006


Nebraska


97324


6787


326


0.070


0.003


0.035


Nevada


148656


3828


933


0.026


0.006


0.013


New Hampshire


50830


3706


550


0.073


0.011


0.036


New Jersey


375049


20285


3058


0.054


0.008


0.027


New Mexico


112829


2966


325


0.026


0.003


0.013


New York


1295374


101739


11309


0.079


0.009


0.039


North Carolina


523920


21179


2539


0.040


0.005


0.020


North Dakota


27846


896


137


0.032


0.005


0.016


Ohio


533364


25420


1863


0.048


0.003


0.024


Oklahoma


166004


11198


1302


0.067


0.008


0.034


Oregon


157748


6336


283


0.040


0.002


0.020


Pennsylvania


493339


16471


5057


0.033


0.010


0.017


Rhode Island


35733


2200


293


0.062


0.008


0.031


South Carolina


216451


14348


2370


0.066


0.011


0.033


South Dakota


41615


2449


153


0.059


0.004


0.029


Tennessee


232486


12869


2586


0.055


0.011


0.028


Texas


1074909


55509


1926


0.052


0.002


0.026


Utah


125553


4192


311


0.033


0.002


0.017


Vermont


17565


632


65


0.036


0.004


0.018


Virginia


303203


13140


1443


0.043


0.005


0.022


Washington


298474


13146


1329


0.044


0.004


0.022


West Virginia


51452


2618


248


0.051


0.005


0.025


Wisconsin


322877


45


16


0.000


0.000


0.000


Wyoming


34243


1633


164


0.048


0.005


0.024

* Quoting http://fisher.lib.virginia.edu/collections/stats/crime/2000cb.pdf : “(3) No arrest data were provided for Washington, DC, and Florida. Limited arrest data were available for Illinois and Kentucky.”

Source: FBI Uniform Crime Reports accessed at http://fisher.lib.virginia.edu/collections/stats/crime/.


Table 2: Expenditures Attributable to Marijuana Prohibition ($ in millions)


Police Budget


Judicial Budget


Corrections Budget


Total


State


Total:


MJ Prohib:


Total


MJ Prohib:


Total


MJ Prohib.


Total


MJ Prohib.


Alabama


656


18.28


262


28.56


404


4.04


1,322


51


Alaska


177


3.61


130


14.17


175


1.75


482


20


Arizona


1096


33.79


611


66.60


955


9.55


2,662


110


Arkansas


351


6.99


156


17.00


328


3.28


835


27


California


8703


227.97


6255


681.80


7170


71.70


22,128


981


Colorado


830


19.48


329


35.86


820


8.20


1,979


64


Connecticut


682


19.25


430


46.87


554


5.54


1,666


72


Delaware


166


4.82


90


9.81


228


2.28


484


17


Florida


3738


103.19


1396


152.16


3272


32.72


8,406


288


Georgia


1279


48.38


525


57.23


1375


13.75


3,179


119


Hawaii


222


2.49


180


19.62


153


1.53


555


24


Idaho


207


4.61


102


11.12


191


1.91


500


18


Illinois


3053


84.28


961


104.75


1763


17.63


5,777


207


Indiana


843


28.25


325


35.43


727


7.27


1,895


71


Iowa


426


13.44


253


27.58


298


2.98


977


44


Kansas


430


12.26


206


22.45


349


3.49


985


38


Kentucky


488


19.78


290


31.61


610


6.10


1,388


57


Louisiana


829


27.89


359


39.13


780


7.80


1,968


75


Maine


164


6.31


69


7.52


123


1.23


356


15


Maryland


1120


39.68


489


53.30


1104


11.04


2,713


104


Massachusetts


1479


53.98


628


68.45


795


7.95


2,902


130


Michigan


1792


40.62


905


98.65


1853


18.53


4,550


158


Minnesotta


874


37.18


442


48.18


591


5.91


1,907


91


Mississippi


404


12.03


154


16.79


292


2.92


850


32


Missouri


886


21.79


359


39.13


627


6.27


1,872


67


Montana


136


1.02


66


7.19


125


1.25


327


9


Nebraska


235


8.98


96


10.46


231


2.31


562


22


Nevada


539


10.32


248


27.03


471


4.71


1,258


42


New Hampshire


187


8.84


92


10.03


115


1.15


394


20


New Jersey


2231


78.52


948


103.33


1480


14.80


4,659


197


New Mexico


382


6.12


167


18.20


315


3.15


864


27.47


New York


5717


274.42


2262


246.56


4392


43.92


12,371


564.90


North Carolina


1318


33.03


470


51.23


1159


11.59


2,947


95.85


North Dakota


68


1.43


55


6.00


40


0.40


163


7.82


Ohio


2124


58.03


1158


126.22


1937


19.37


5,219


203.63


Oklahoma


518


21.53


193


21.04


511


5.11


1,222


47.68


Oregon


696


15.23


356


38.80


747


7.47


1,799


61.50


Pennsylvania


2220


59.82


1067


116.30


2221


22.21


5,508


198.33


Rhode Island


211


8.23


105


11.45


139


1.39


455


21.06


South Carolina


653


28.79


179


19.51


559


5.59


1,391


53.89


South Dakota


88


2.91


40


4.36


81


0.81


209


8.08


Tennessee


940


36.47


399


43.49


604


6.04


1,943


86.00


Texas


3204


88.47


1355


147.70


3755


37.55


8,314


273.71


Utah


381


7.30


202


22.02


351


3.51


934


32.83


Vermont


78


1.69


39


4.25


66


0.66


183


6.60


Virginia


1176


31.08


513


55.92


1246


12.46


2,935


99.46


Washington


1007


26.66


470


51.23


1053


10.53


2,530


88.42


West Virginia


171


5.17


108


11.77


184


1.84


463


18.79


Wisconsin


1124


0.13


440


47.96


1030


10.30


2,594


58.39


Wyoming


99


2.83


50


5.45


98


0.98


247


9.26


56,398


1,707.41


26,984


2941.26


48447


484.47


131,829


5,133










Arrest Data: http://fisher.lib.virginia.edu/collections/stats/crime/


Judicial Percent: Pastore and Maguire (2003), Table 5.42, p.444


Budget Data: http://www.census.gov/govs/www/state00.html


Incarceration Percent: Pastore and Maguire (2003), Table 6.30, p.499



Table 3: Federal Expenditure on Marijuana Prohibition, 2002


1.


Prohibition Enforcement, All Drugs



$13.6 billion


 





2.


Marijuana Use Rate, Past Year, 2002


11.0%



3.


Any Illicit Drug Use Rate, Past Year, 2002


14.9%



4.


Ratio


74%



5.


Ratio × Line 1



$10.0 billion


 





6.


Percent of All Drug Arrests for MJ, 2001


46.0%



7.


Line 6 × Line 1



$6.3 billion


 





8.


Percent of All Trafficking Arrests for MJ, 2001


26%



9.


Line 8 × Line 1



$3.6 billion


 





10.


Percent of DEA Drug Arrests for MJ, 2002


18.6%



11.


Line 10 × Line 1



$2.5 billion


 





12.


Percent of DEA Drug Convictions for MJ, 2002


19.9%



13.


Line 12 × Line 1



$2.7 billion

Sources:

Line 1: Miron (2003b, p.10).

Lines 2-3: SAMHSA, Office of Applied Statistics, National Survey on Drug Use and Health, 2002, http://www.samhsa.gov/oas/nhsda/2k2nsduh/Results/apph.htm#tabh.2.

Lines 6 and 8: Sourcebook of Criminal Justice Statistics Online, http://www.albany.edu/sourcebook/1995/pdf/t429.pdf/

Line 10: Sourcebook of Criminal Justice Statistics Online, http://www.albany.edu/sourcebook/1995/pdf/t440.pdf/

Line 12: Sourcebook of Criminal Justice Statistics Online, http://www.albany.edu/sourcebook/1995/pdf/t538.pdf


Table 4a: State Marijuana Tax Revenue – Population Method



Population


Proportion


Tax Revenue


Alabama


4,447,100


0.016


12.6


Alaska


626,932


0.002


1.8


Arizona


5,130,632


0.018


14.6


Arkansas


2,673,400


0.009


7.6


California


33,871,648


0.120


96.3


Colorado


4,301,261


0.015


12.2


Connecticut


3,405,565


0.012


9.7


Delaware


783,600


0.003


2.2


Dist. Columbia


572,059


0.002


1.6


Florida


15,982,378


0.057


45.4


Georgia


8,186,453


0.029


23.3


Hawaii


1,211,537


0.004


3.4


Idaho


1,293,953


0.005


3.7


Illinois


12,419,293


0.044


35.3


Indiana


6,080,485


0.022


17.3


Iowa


2,926,324


0.010


8.3


Kansas


2,688,418


0.010


7.6


Kentucky


4,041,769


0.014


11.5


Louisiana


4,468,976


0.016


12.7


Maine


1,274,923


0.005


3.6


Maryland


5,296,486


0.019


15.1


Massachusetts


6,349,097


0.023


18.0


Michigan


9,938,444


0.035


28.3


Minnesota


4,919,479


0.017


14.0


Mississippi


2,844,658


0.010


8.1


Missouri


5,595,211


0.020


15.9


Montana


902,195


0.003


2.6


Nebraska


1,711,263


0.006


4.9


Nevada


1,998,257


0.007


5.7


New Hampshire


1,235,786


0.004


3.5


New Jersey


8,414,350


0.030


23.9


New Mexico


1,819,046


0.006


5.2


New York


18,976,457


0.067


53.9


North Carolina


8,049,313


0.029


22.9


North Dakota


642,200


0.002


1.8


Ohio


11,353,140


0.040


32.3


Oklahoma


3,450,654


0.012


9.8


Oregon


3,421,399


0.012


9.7


Pennsylvania


12,281,054


0.044


34.9


Rhode Island


1,048,319


0.004


3.0


South Carolina


4,012,012


0.014


11.4


South Dakota


754,844


0.003


2.1


Tennessee


5,689,283


0.020


16.2


Texas


20,851,820


0.074


59.3


Utah


2,233,169


0.008


6.3


Vermont


608,827


0.002


1.7


Virginia


7,078,515


0.025


20.1


Washington


5,894,121


0.021


16.8


West Virginia


1,808,344


0.006


5.1


Wisconsin


5,363,675


0.019


15.2


Wyoming


493,782


0.002


1.4

State Populations: http://www.census.gov/popest/states/NST-EST2003-ann-est.html


Table 4b: State Marijuana Tax Revenue – Consumption Method



Use Rate†


User Population


Use Proportion


Tax Revenue


Alabama


0.044


193,449


0.011


8.9


Alaska


0.098


61,251


0.004


2.8


Arizona


0.055


284,237


0.016


13.0


Arkansas


0.054


145,166


0.008


6.7


California


0.068


2,296,498


0.132


105.4


Colorado


0.089


383,672


0.022


17.6


Connecticut


0.063


213,529


0.012


9.8


Delaware


0.068


53,206


0.003


2.4


Dist. Columbia


0.108


61,897


0.004


2.8


Florida


0.066


1,051,640


0.060


48.2


Georgia


0.051


420,784


0.024


19.3


Hawaii


0.072


87,110


0.005


4.0


Idaho


0.056


72,461


0.004


3.3


Illinois


0.056


689,271


0.040


31.6


Indiana


0.064


388,543


0.022


17.8


Iowa


0.046


135,489


0.008


6.2


Kansas


0.053


143,024


0.008


6.6


Kentucky


0.055


221,489


0.013


10.2


Louisiana


0.064


284,227


0.016


13.0


Maine


0.069


88,352


0.005


4.1


Maryland


0.057


302,959


0.017


13.9


Massachusetts


0.063


401,263


0.023


18.4


Michigan


0.071


705,630


0.040


32.4


Minnesota


0.063


311,403


0.018


14.3


Mississippi


0.050


142,802


0.008


6.6


Missouri


0.061


339,070


0.019


15.6


Montana


0.087


78,581


0.005


3.6


Nebraska


0.064


109,179


0.006


5.0


Nevada


0.086


172,450


0.010


7.9


New Hampshire


0.099


121,725


0.007


5.6


New Jersey


0.050


420,718


0.024


19.3


New Mexico


0.059


106,596


0.006


4.9


New York


0.075


1,427,030


0.082


65.5


North Carolina


0.056


448,347


0.026


20.6


North Dakota


0.056


35,771


0.002


1.6


Ohio


0.067


759,525


0.044


34.8


Oklahoma


0.052


180,469


0.010


8.3


Oregon


0.090


306,557


0.018


14.1


Pennsylvania


0.054


664,405


0.038


30.5


Rhode Island


0.095


99,485


0.006


4.6


South Carolina


0.050


198,996


0.011


9.1


South Dakota


0.057


42,875


0.002


2.0


Tennessee


0.047


266,827


0.015


12.2


Texas


0.049


1,015,484


0.058


46.6


Utah


0.046


102,502


0.006


4.7


Vermont


0.100


61,126


0.004


2.8


Virginia


0.064


455,149


0.026


20.9


Washington


0.081


479,192


0.027


22.0


West Virginia


0.050


90,056


0.005


4.1


Wisconsin


0.054


291,784


0.017


13.4


Wyoming


0.052


25,578


0.001


1.2

†Marijuana Use Rates: http://oas.samhsa.gov/2k2State/html/appA.htm#taba.1

Appendix A: Percentage of Corrections Population Incarcerated on Marijuana Charges

State-by-state data on the fraction of prisoners incarcerated on marijuana charges are not available, but data for a few states provide reasonable estimates of this fraction. This appendix displays the available information.

Appendix Table A1


State


Year


% Incarcerated for MJ Violation


Population


Pop %


Weighted Share


California


2003


0.008


33,871,648


0.568


0.005


Georgia


2000


0.014


8,186,453


0.137


0.002


Massachusetts


2000


0.017


6,349,097


0.107


0.002


Michigan


2001


0.006


9,938,444


0.167


0.001


New Hampshire


2002


0.016


1,235,786


0.021


0.000


Total


0.061


59,581,428




Average:



0.012








Weighted Average



0.010

Sources:

New Hampshire: http://www.state.nh.us/doc/population.html.

California: http://www.corr.ca.gov/OffenderInfoServices/Reports/Annual/CensusArchive.asp.

Michigan: http://www.michigan.gov/documents/2001Stat_79881_7.pdf

Georgia: http://www.dcor.state.ga.us/pdf/inms03-12.pdf

Massachusetts: Miron (2002, pp.4-5).

Appendix B: Revenue Under Prohibition from Seizures and Fines

State-by-state data on fines and seizures are not available. There is sufficient information, however, to estimate an upper bound on the revenue from fines and seizures. There are also data on federal fines and seizures.

Seizures:

The two main sources of federal seizure revenue are the Drug Enforcement Administration (DEA) and the U.S. Customs Service. In 2002, the DEA made seizures totaling $438 million.[32] In 2001, the U.S. Customs Service seized property valued at $592 million.[33] These figures overstate revenue since some defendants recovered their seized property. The Customs seizures overstate revenue related to drugs because the figure includes seizures for all reasons, such as violation of gun laws, intellectual property laws, and the like. There may also be double-counting between the DEA seizures and the U.S. Customs seizures.

Summing together the two components yields $1,030 million (= $438+$592 million) as the seizure revenue that results from enforcement of drug laws. This figure must be adjusted downward, however, to separate out the portion due to violation of marijuana laws as opposed to other drug laws. As shown in Table 3, approximately 20% of the federal drug enforcement budget is attributable to marijuana, so it is reasonable to assume approximately 20% of the fines and seizures correspond to enforcement of marijuana laws.

Thus, seizure revenue at the federal level due to marijuana prosecutions is roughly $206.0 million annually.

State and local data on forfeiture revenue are not readily available for all states Baicker and Jacobson (2004), however, estimate using a sample of states that state forfeiture revenue per capita was roughly $1.14 during the 1994-2001 period. This implies aggregate state forfeiture revenue of $342 million. Deflating by 26%, the fraction of all drug trafficking arrests due to marijuana, implies that marijuana seizures yield $89 million to state governments.

Fines: In 2001, the total quantity of fines and restitutions ordered for drug offense cases in U.S. District Courts was just under $41 million.[34] Adjusting this by the 20% figure implies $8.2 million from marijuana cases. Assuming the ratio of state/local to federal fine revenue is similar to ratio of state/local to federal seizure revenue implies that state and local fines/restitution from marijuana cases is about $3.5 million.

Footnotes

[1] See, for example, the estimates in Miron (2002) versus those in Miron (2003c).

[2] This report addresses only the criminal justice costs of enforcing marijuana prohibition; it does not address any possible changes in prevention, education, or treatment expenses that might accompany marijuana legalization. The narrower approach is appropriate because the decision to prohibit marijuana is separate from the decision to subsidize prevention, education and treatment activities. Marijuana legalization might nevertheless cause some reduction in government expenditure for demand-side policies. For example, legalization would likely mean reduced criminal justice referrals of marijuana offenders to treatment; this category accounted for 58.1% of marijuana treatment referrals in 2002 (U.S. Department of Health and Human Services (2004, Table 4, p.15)). Thus, the approach adopted here implies a conservative estimate of the reduction in government expenditure from marijuana legalization.

[3] For example, under current rules regarding parole and probation, a positive urine test for marijuana can send a parolee or probationer to prison, regardless of the original offense. These rules might change under legalization, implying additional reductions in government expenditure.

[4] The key assumption is that the technology is constant-returns to scale, so that average costs equal marginal costs. This equivalence is not necessarily accurate in the short-run or for very small communities but is likely a good approximation overall.

[5] This part of the report relies on data for 2000 since that is the last year for which complete information on arrests is available. After estimating expenditure for 2000, the report adjusts for inflation between 2000 and 2003.

[6] To the extent it takes additional resources to process an arrestee on multiple charges rather than on a single charge, there is still a net utilization of police resources in such cases due to prohibition. In addition, there is typically a lab test to determine the precise content of any drugs seized when there is an arrest on drugs charges, implying utilization of additional resources due to prohibition. A different issue is that in some cases, police stops for non-drug charges that discover drugs and produce an arrest on drugs charges might not have led to any arrest in the absence of the drug charge (e.g., because of insufficient evidence).

[7] Lewis (2004) reports that the fraction of stand-alone arrests on all drug charges in the city of Syracuse, NY was 90.5% in 2002.

[8] Gettman and Fuller (2003) obtain a similar estimate to that reported here for Virginia in 2001.

[9] The data on felony convictions are from Durose and Langan (2003, Table 1, p.2).

[10] The fraction of felony convictions for any type of drug is from Durose and Langan (2003, Table 1, p.2).

[11] This report excludes the capital outlays portion of the corrections budget, since the available data do not indicate the average rate of such expenditures. This biases the estimates downward.

[12] Most seized assets are ultimately forfeited.

[13] Inflation rate data are for the CPI - All Urban Consumers (Bureau of Labor Statistics, U.S. Department of Labor, http://www.bls.gov/cpi/home.htm#data).

[14] The figure here for Massachusetts exceeds that in Miron (2003c) because this report assumes 50% of possession arrests are due to marijuana prohibition while the earlier report assumed 33%. The 50% figure is more appropriate here because the analysis covers all states rather than just Massachusetts.

[15] As a check, it is useful to compare the $5.1 billion figure provided here to that derived from an alternative methodology. ONDCP (1993) reports survey evidence on drug prohibition enforcement by state and local authorities for the years 1990/1991. Adjusting these data for inflation and the percent attributable to marijuana prohibition yields an estimate similar to that reported above.

[16] The approach utilized here differs from that employed in the case of state and local expenditure because of differences in the kinds of data available. Utilizing an approach that is similar to the extent possible yields an estimate of federal marijuana enforcement expenditure that is similar to the estimate provided in the text.

[17] This consists of expenditure in the following categories: DC Court Services and Offender Supervision ($86.4 million); Department of Defense ($1,008.5 million); Intelligence Community Management Account ($42.8 million); The Judiciary ($819.7 million); Department of Justice ($8,140.1 million); ONDCP ($533.3 million); Department of State ($832.6 million); Department of Transportation ($591.4 million); and Department of Treasury ($1,546.8 million). See ONDCP (2002), p.29-31.

[18] Murphy, Davis, Liston, Thaler and Webb (2000) examine the methods used by ONDCP to estimate this expenditure. They conclude that methodological problems render parts of the estimates biased, in some cases by substantial amounts. These issues do not imply major qualifications to the data considered here, however. Murphy et al. find that the anti-drug budgets of the Coast Guard and the Bureau of Prisons are accurate reflections of the resources expended while the reported expenditure of the Department of Defense probably underestimates its anti-drug budget. The overestimates that they identify occur for demand-side activities.

[19] The 2003 National Drug Control Strategy adopts a new methodology for estimating the federal drug control budget. This new methodology implies a substantial reduction in supply side expenditure (ONDCP (2002, pp.33-34)). For the purposes of this report, the old methodology is more appropriate. For example, the new approach excludes expenditures on incarceration of persons imprisoned for drug crimes.

[20] The percentage of prisoners whose primary offense was a marijuana charge would also be relevant, but data are not readily available. Since most convictions at the federal level result in prison terms, incarceration data would imply a similar result to that provided above.

[21] Inflation rate data are for the CPI - All Urban Consumers (Bureau of Labor Statistics, U.S. Department of Labor, http://www.bls.gov/cpi/home.htm#data).

[22] To be explicit, the assumption is that there is no shift in the demand curve. If the supply curve shifts, there will be a change in the quantity demanded.

[23] The underlying assumption is that the marginal costs of evading tax and regulatory costs is zero for black market suppliers who are already conducting their activities in secret.

[24] MacCoun and Reuter (1997) report gram prices of $2.50-$12.50 in the Netherlands and $1.50 - $15.00 in the U.S. They speculate that the surprisingly high prices in the Netherlands might reflect enforcement aimed at large-scale trafficking. Harrison, Backenheimer, and Inciardi (1995) note that ONDCP data on drug prices in the U.S. are very similar to prices charged in Dutch coffeeshops. ONDCP (2001b) reports a price per gram for small-scale purchases of roughly $9 per gram in the second quarter of 2000, while EMCDDA (2002) suggests a price of 2-8 Euros per gram, which is roughly $6 on average. Various web sites that discuss the coffee shops in Amsterdam suggest prices of $5 - $11 per gram in recent years. These comparisons do not adjust for potency or other dimensions of quality.

[25] Clements and Daryal (2001) report marijuana prices for Australia that are similar to or higher than those in the United States. Since Australian marijuana policy is noticeably less strict than U.S. policy, this observation is consistent with the view that legalization would not produce a dramatic fall in price.

[26] The Nisbet and Vakil estimates that use survey data imply price elasticities of -0.365 or -0.51 in the log and linear specifications, respectively, while the purchase data imply price elasticities of -1.013 and -1.51. The estimates based on purchase data are plausibly more reliable. Moreover, as they note, these estimates are likely biased downward by standard simultaneous equations bias. Clemens and Daryal (1999) estimate a price elasticity of -0.5 for marijuana using Australian data. Estimates of the demand for “similar” goods (e.g., alcohol, cocaine, heroin, or tobacco) suggest similar elasticities.

[27] Pacula, Grossman, Chaloupka, O’Malley, Johnston and Farrelly (2000) summarize the literature on the relation between marijuana use and factors that can affect use, such as legal penalties. They conclude the evidence is mixed but overall indicates a moderate response of marijuana consumption to “price.” The papers summarized do not provide measures of the price elasticity. The results reported by Pacula et al. suggest an elasticity of marijuana participation between 0.0 and -0.5; this understates the total elasticity, which includes any change in consumption conditional on participation. The literature since Nisbet and Vakil is thus consistent with the elasticity estimate assumed above.

[28] Given the uncertainties involved in calculating the tax revenue from marijuana legalization and the possibility that declines in marijuana prices have offset general inflation since 2000, this report omits any adjustment of the tax revenue for inflation. Such an adjustment would make only a small difference in any case.

[29] In 2001, total government receipts divided by GDP equaled 29.7%. See the 2003 Economic Report of the President on-line, http://w3.access.gpo.gov/usbudget/fy2004/pdf/2003_erp.pdf, Tables B-1 and B-92, pp. 276 and 373.

[30] Whether such production is illicit depends on the details of a legalization law. Plausibly, growing small amounts for personal use would not be subject to taxation or regulation, just as growing small amounts of vegetables or herbs is not subject to taxation or regulation.

[31] Schwer, Riddel and Henderson (2002) estimate the tax revenue from marijuana legalization in Nevada assuming “sin taxation.” Their estimates are not readily comparable to those presented here because they consider the situation in which one state legalizes marijuana while other states and the federal government prohibit marijuana. The same comment applies to Bates (2004), who estimates the tax revenue from marijuana legalization in Alaska. Easton (2004) estimates the tax revenue from marijuana legalization in Canada under the assumption of sin taxation. His estimates are comparable but modestly higher than those presented here, adjusted for the different size of the U.S. and Canadian economies. Caputo and Ostrom (1994) provide estimates for the overall economy that are similar to those obtained here.

[32] See http://www.albany.edu/sourcebook/1995/pdf/t442.pdf.

[33] See http://www.albany.edu/sourcebook/1995/pdf/t444.pdf.

[34] See http://www.albany.edu/sourcebook/1995/pdf/t531.pdf.

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