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
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: Suggested Citation