Marijuana Liberalization and Public Finance: A Capital Market Perspective on the Passage of Medical Use Laws

Forthcoming, Journal of Accounting and Economics

76 Pages Posted: 6 Nov 2019 Last revised: 30 Jun 2022

See all articles by Stephanie F. Cheng

Stephanie F. Cheng

Tulane University - A.B. Freeman School of Business

Gus De Franco

Tulane University - A.B. Freeman School of Business

Pengkai Lin

Singapore Management University - School of Accountancy

Date Written: May 16, 2022

Abstract

We find that the staggered passage of state-level laws that legalize marijuana for medical use increases states’ borrowing costs by 7 to 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.

Keywords: Marijuana, Public Health, Public Finance, Municipal Bonds

JEL Classification: E60; G28; H74; H75; I18

Suggested Citation

Cheng, Stephanie F. and De Franco, Gus and Lin, Pengkai, Marijuana Liberalization and Public Finance: A Capital Market Perspective on the Passage of Medical Use Laws (May 16, 2022). Forthcoming, Journal of Accounting and Economics, Available at SSRN: https://ssrn.com/abstract=3474119 or http://dx.doi.org/10.2139/ssrn.3474119

Stephanie F. Cheng (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Gus De Franco

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Pengkai Lin

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore
+65 6826 4837 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
468
Abstract Views
2,987
Rank
93,465
PlumX Metrics