The Taxation of Recreational Marijuana: Evidence from Washington State

49 Pages Posted: 25 Jul 2017

See all articles by Benjamin Hansen

Benjamin Hansen

University of Oregon - Department of Economics; NBER; IZA

Keaton Miller

University of Oregon

Caroline Weber

University of Oregon - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 21, 2017

Abstract

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.

Keywords: Marijuana, Excise Taxes, Pass Through, Tax Incidence, Vertical Integration, Tax Invariance, Natural Experiment

JEL Classification: H2, H3, H7, I1, K4

Suggested Citation

Hansen, Benjamin and Miller, Keaton and Weber, Caroline, The Taxation of Recreational Marijuana: Evidence from Washington State (July 21, 2017). Available at SSRN: https://ssrn.com/abstract=3006807 or http://dx.doi.org/10.2139/ssrn.3006807

Benjamin Hansen (Contact Author)

University of Oregon - Department of Economics ( email )

1285 University of ORegon
Eugene, OR 97403
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Keaton Miller

University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Caroline Weber

University of Oregon - Department of Economics ( email )

Eugene, OR 97403
United States

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