Fiscal Federalism and the War on Drugs

Abstract

In 2000, 34% of federal defendants were prosecuted for drug offenses despite the fact that all states had statutes prohibiting these offenses. According to Fiscal Federalism, the national government should have a role in these prosecutions if there are inter-jurisdictional positive externalities for drug convictions. If positive externalities are important, the federal government should help states that are too poor or have too many other priorities to adequately deal with illicit drugs. The empirical findings in this paper are consistent with this prescription. Specifically, a higher fraction of drug incarcerations are federal in states where more individuals favor the de-criminalization of marijuana and in states with lower per-capita income. The emphasis on supply policies as a means of reducing drug use may be inefficient. However, the results in this paper are consistent with the federalization of drug prosecutions implementing the supply policies efficiently.

JEL Classification: K14, K42, H77