Legalizing marijuana is often cited as a way to mitigate fiscal deficits for states and countries.
But after looking at data from the Canadian market, two bold economists dare to challenge this notion.
While there are both social and health-related benefits of cannabis legalization, economists Ian Irvine and Miles Light warn that legalizing adult-use cannabis might not be the golden goose that many expect.
In a research paper published in Canadian Public Policy, the co-authors state that legalization comes with an inherent paradox: in order to beat black market prices, jurisdictions are forced to bring down taxes. In some cases, this can turn legalization into an unfruitful endeavor from a tax revenue perspective.
As legal cannabis eats away at the market share of other commodities like tobacco and alcohol, jurisdictions that place high taxes on these products can actually experience a drop in overall tax revenue, after legalization occurs.