Caroline Weber

The Taxation of Recreational Marijuana: Evidence from Washington State

The median United States voter supports the legalization of marijuana, at least in part due to a desire to increase state tax revenues. However, states with legal markets have implemented wildly different regulatory schemes with tax rates ranging from 3.75 to 37 percent, indicating that policy makers have a range of beliefs about industry responses to taxes and regulation. We examine a policy reform in Washington: a switch from a 25 percent gross receipts tax collected at every step in the supply chain to a sole 37 percent excise tax at retail. Using novel, comprehensive administrative data, we assess responses to the reform throughout the supply and consumption chain. We find the previous tax regime provided strong incentives for vertical integration. Tax invariance did not hold, with some types of firms benefiting much more than predicted. Consumers bear 44 percent of the additional retail tax burden. Finally, we find evidence that consumer demand for marijuana is price-inelastic in the short-run, but becomes price-elastic within a few weeks of a price increase.

The Grass is Greener on the Other Side: How Extensive is the Interstate Trafficking of Recreational Marijuana?

Marijuana is partially prohibited: though banned federally, it will soon be available to almost 1 in 4 U.S. adults under state statutes. A chief concern among policy makers is marijuana trafficking from states with legal markets elsewhere. We measure trafficking with a natural experiment. Oregon opened recreationally licensed stores on October 1, 2015, next to Washington where stores had been legally selling recreational marijuana since July, 2014. Using administrative data covering the universe of recreational market sales, we find Washington retailers along the Oregon border experienced a 41% decline in sales immediately following Oregons market opening. In counties that are the closest crossing point for the majority of the neighboring population, the estimated decrease grows to 58%, and is the largest for the biggest transactions. We also test if these inter-state spill-overs led to health externalities by studying traffic accidents in Oregon from 2011-2015.

The Behavioral Response to Housing Transfer Taxes: Evidence from a Notched Change in D.C. Policy

This paper estimates the behavioral response to residential real estate transfer taxes by studying notched tax rate changes in Washington D.C., exploiting both a price and time notch as identifying variation. We provide evidence that there is manipulation of the sales price to the lower-tax-rate region around the price notch, and use this manipulation to show that there was significant awareness of the tax changes and the incentives they created. We find some less compelling evidence of a change in the timing of house sales to beat the tax increase. Finally, we construct difference-in-difference estimates to examine whether there is a lock-in effect in the volume of house sales away from the price and time notches; we find no evidence of a lock-in effect in this setting.

Estimating the Elasticity of Broad Income for High-Income Taxpayers

This paper precisely estimates the elasticity of broad income (EBI) with respect to the marginal net-of-tax rate for high-income taxpayers. We study the introduction of a new top income tax bracket in 2013 using a large panel of high-income taxpayers drawn from administrative tax records. Our estimation strategy — inverse probability weighting — takes into account the tremendous income volatility experienced by high-income taxpayers. We obtain an intent-to-treat (ITT) EBI of 0.013. After rescaling to account for taxpayers crossing the top income tax bracket threshold, we obtain a treatment-effect-on-the-treated elasticity that is bounded below by the ITT estimate and above by 0.034.

Global Tax Policy and the Synchronization of Business Cycles

Using a 30-year panel of quarterly GDP fluctuations from of a broad set of countries, we demonstrate that the signing of a bilateral tax treaty increases the comovement of treaty partners’ business cycles by 1/2 a standard deviation. This effect of fiscal policy is as large as the effect of trade linkages on comovement, and stronger than the effects of several other common financial and investment linkages. We also show that bilateral tax treaties increase comovement in shocks to nations’ GDP trends, demonstrating the permanent effects of coordination on fiscal policy rules. We estimate trend and business cycle components of nations’ output series using an unobserved-components model in order to measure comovement between countries, and then estimate the impact of tax treaties using generalized estimating equations.