Source: [Department of Economics, Harvard University
* Government prohibition of drugs is the subject of ongoing debate.
* One issue in this debate is the effect of prohibition on
government budgets. Prohibition entails direct enforcement costs
and prevents taxation of drug production and sale.
* This report examines the budgetary implications of legalizing drugs.
* The report estimates that legalizing drugs would save roughly
$48.7 billion per year in government expenditure on enforcement of
prohibition. $33.1 billion of this savings would accrue to state
and local governments, while $15.6 billion would accrue to the
federal government. Approximately $13.7 billion of the savings
would results from legalization of marijuana, $22.3 billion from
legalization of cocaine and heroin, and $12.8 from legalization of
* The report also estimates that drug legalization would yield tax
revenue of $34.3 billion annually, assuming legal drugs are taxed
at rates comparable to those on alcohol and tobacco. Approximately
$6.4 billion of this revenue would result from legalization of
marijuana, $23.9 billion from legalization of cocaine and heroin,
and $4.0 billion from legalization of other drugs.
* State-by-state breakdowns provide a rough indication of
legalization’s impacts on state budgets, but these estimates are
less reliable than those for the overall economy.
* Whether drug legalization is a desirable policy depends on many
factors other than the budgetary impacts discussed here. Rational
debate about drug policy should nevertheless consider these
* The estimates provided here are not definitive estimates of the
budgetary implications of a legalized regime for currently illegal
drugs. The analysis employs assumptions that plausibly err on the
conservative side, but substantial uncertainty remains about the
magnitude of the budgetary impacts.