Revenue Diversification or Revenue Substitution? Evidence From Local Cannabis Taxes and Property Tax Rates

This study examines whether local cannabis tax revenues reduce reliance on property taxes or supplement existing revenue sources. Using a panel dataset of New Jersey municipalities, we analyze the association between local cannabis tax revenues and effective property tax rates. On average, a one dollar increase in local cannabis tax revenue per capita is associated with a statistically precise but substantively negligible 0.001 percentage point increase in effective property tax rates, suggesting that cannabis revenues do not meaningfully alter local property tax burdens. We also find little evidence that the association between cannabis revenues and effective property tax rates varies across municipalities with different levels of fiscal capacity or economic distress.