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Marijuana Legalization and Taxation: Approaches of States from the Perspective of Public Finances

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Marijuana Legalization and Taxation: Approaches of States from the Perspective of Public Finances FACULTY OF ECONOMICS AND ADMINISTRATION Marijuana legalization and taxation: approaches of states from the perspective of public finances. Diploma Thesis SERENA IGLINA Supervisor: Robert Jahoda Public Finance and Economics Brno 2021 MARIJUANA LEGALIZATION AND TAXATION: APPROACHES OF STATES FROM THE PERSPECTIVE OF PUBLIC FINANCES. Bibliographic record Author: Serena Iglina Faculty of Economics and Administration Masaryk University Department of Public Economics Title of Thesis: Marijuana legalization and taxation: Approaches of states from the perspective of public finances. Degree Programme: Public Finance and Economics Field of Study: Public Finance and Economics Supervisor: Robert Jahoda Year: 2021 Number of Pages: 81 Keywords: Marijuana, taxation, legalization, prohibition, revenue, drug consumption, economic cost-benefit analysis TABLE OF CONTENT Abstract The very long political debate, the growing amount of economic data and new scientific studies on drugs have brought to the attention the academic literature on the economic consequences linked to prohibition and legalization of drugs. This study aims to provide an economic and political analysis starting from the analysis of historical data concerning prohibition and legalization. Moreover, it aims to estimate the limits imposed by the so- called anti-drug policies, which have long hindered the growth and development of emerging and significant sectors from a mainly economic but also political and social point of view. The economic and social consequences related to alcohol prohibition in the U.S.A. are highlighted to be able to draw up a cost-benefit analysis that allows a comparison between a market in which consumption is prohibited with one that rules its consumption and sale. Then, drug consumption trends - in particular cannabis - are analyzed both in a context of legality and in an illicit market. After an overview about the regulatory systems in force, the potential tax benefit (in terms of savings on public spending and tax revenues generated by tax collection) generated by a tax on cannabis sales is evaluated, comparing the results of two different ways of taxation. 4 TABLE OF CONTENT Declaration I declare that I have written the Master's Thesis Marijuana legalization and taxation: approaches of states from the perspective of public finances by myself under the supervision of both my supervisors, Doc. Ing. Robert Jahoda, Ph.D. from the Masaryk University and Prof. Roberto Zanola from the University of Piemonte Orientale, in accordance with the Agreement on Cooperation concluded between the Masaryk University in Brno, the Czech Republic and University of Piemonte Orientale, Italy. I certify that I have listed all the literature and other sources in accordance with legal regulations, Masaryk University internal regulations, and the internal procedural deeds of Masaryk University and the Faculty of Economics and Administration. Brno, 2021 Serena Iglina 5 TABLE OF CONTENT Acknowledgement I have always associated the memory of the scent of the pages of a book with a happy moment in my life. Since I was little, for pleasure or for duty, that perfume has accompanied me in an emotional and personal growth of which I am becoming aware only at this moment of my life. And so, with the last note of that perfume, I conclude my journey by thanking all those who have been close to me and those who, even making me suffer a little, have taught me that the beauty of reaching a goal is not so much the result as the "little" adventures you experience along the way. Finally, I want to thank myself for never giving up. Bob Marley said: None but ourselves can free our minds. 6 TABLE OF CONTENT Table of contents INTRODUCTION ................................................................................................................................. 1 CHAPTER 1. ......................................................................................................................................... 3 Description of historical attitudes toward marijuana ........................................................................ 3 1.1 The origins of cannabis ............................................................................................. 3 1.2 Cannabis properties and current uses ....................................................................... 4 1.3 Marijuana as a psychoactive substance or medical principle? ................................... 8 1.4 How harmful is cannabis? ......................................................................................... 9 CHAPTER 2. ....................................................................................................................................... 12 Economic aspects of marijuana as an (il)legal drug ......................................................................... 12 2.1 Marijuana as an (il)legal drug? ............................................................................... 12 2.2 Economic pros and cons of drug legalization ........................................................... 13 2.3 Drug consumption and consumers’ behaviour ........................................................ 16 2.4 Drug consumption externalities ............................................................................... 17 CHAPTER 3. ....................................................................................................................................... 19 Current taxation models alternatives of legal marijuana ................................................................ 19 3.1 Cannabis legalization: the current world overview ................................................. 19 3.2 Approaches and experiences of cannabis taxation models ....................................... 22 3.3 New consumer for to the legal cannabis market ...................................................... 25 3.4 Taxation of cannabis: the case of U.S. ..................................................................... 27 3.4.1 Strategies of cannabis taxation .......................................................................... 27 3.4.2 Tax revenues ..................................................................................................... 31 3.4.3 Other factors influencing tax revenue ............................................................... 38 3.4.4 The federal governments’ approach to cannabis taxation ................................. 41 CHAPTER 4. ....................................................................................................................................... 44 Evaluation of the economic effects of legalisation in Italy ............................................................... 44 4.1 The Italian position on the use of drugs ................................................................... 44 4.1.1 The political opinion on drugs ........................................................................... 46 4.1.2 Analysis of current tax laws regarding marijuana use: the Italian regulatory framework ........................................................................................................ 47 4.2 Estimates of cannabis use in Italy ............................................................................ 50 4.2.1 The Miron’s model applied to Italy ................................................................... 50 4.2.2 Economic forecasts deriving from the implementation of a taxation system in Italy ................................................................................................................. 55 CONCLUSION .................................................................................................................................... 60 REFERENCES .................................................................................................................................... 62 7 TABLE OF CONTENT List of Figures 1. Figure 1: CHOUVY, 2019, Global cannabis legalization 2. Figure 2: ITEP, 2019, Countries with recreational cannabis taxation – models from current taxation system in the U.S. 3. Figure 3: ITEP, 2019, Taxation models regarding recreational cannabis in the U.S. 4. Figure 4: ITEP, 2019, Taxation models regarding medical cannabis in the U.S. 5. Figure 5: ITEP, 2018, Tax revenues for states with legal recreational sales, Analysis of state revenue with sales of recreational cannabis 6. Figure 6: ITEP, 2018, Excise Tax Revenue from Cannabis Rivals Alcohol Revenue in States with Legal Retail Sales of Cannabis, Analysis of state revenue 7. Figure 7: ITEP, 2018, Per capita Cannabis excise tax revenue by month since start of Tax Collection, Analysis of state revenue with sales of recreational cannabis 8. Figure 8: SERPELLONI, GENETTI, 2012, % of drug use in Italy, in the last 12 months, regarding population aged 15-64 years (2001-2012 period) 9. Figure 9: SERPELLONI, GENETTI, 2012, Drug use, in the last 12 months, in the age group population 15-19 years (period 2003-2012) 8 TABLE OF CONTENT List of Tables 1. Table 1: NUTT D., 2018, Classification of drugs according to their dangerousness, The Lancet, University of Bristol 2. Table 2: ITEP, 2019 Legalization of medical and recreational cannabis by country 3. Table 3: ITEP, 2019 Pros and cons of cannabis taxation models 4. Table 4: ITEP, 2018, Excise Tax comparison across States, Analysis of state revenue with sales of recreational cannabis 5. Table 5: ITEP, 2018, State-by-state consumption tax estimates from taxing legal recreational cannabis, Analysis of state
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