Marijuana liberalization and public finance: A capital market perspective on the passage of medical use laws

Stephanie F. Cheng, Gus De Franco and Pengkai Lin

Journal of Accounting and Economics, 2023, vol. 75, issue 1

Abstract: We find that the staggered passage of state-level laws that legalize marijuana for medical use increases states' borrowing costs by 7–9 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 (search for similar items in EconPapers)
JEL-codes: E60 G28 H74 H75 I18 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:75:y:2023:i:1:s0165410122000398

DOI: 10.1016/j.jacceco.2022.101516

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