Prohibition vs. Taxification: Drug Control Policy in the USA

James Roumasset

No 199608, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: It is generally thought that legalization of the sale and use of currently illegal drugs would lead to a dramatic increase in drug use and social costs associated with drug abuse and criminal behavior. In this paper we show that it is not necessarily the case that legalization of drugs would be followed by an increase in use. Specifically, if drugs were legalized and taxed, then drug use can be held constant by spending a small fraction of the tax revenues (10.8 per cent in the case of cocaine) on treatment programs. Even if none of the tax revenues are spent on reducing the demand for drugs, the external cost associated with the increase in use from legalization (i.e., costs to society caused by users but borne by others) is only a small fraction of the tax revenues collected (13.2 per cent in the case of cocaine).

Pages: 17 pages
Date: 1996
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