Regulating Firearm Markets: Evidence from California
Abstract:
This paper studies the relationships between consumer demand and public health in firearm markets, and their roles in determining the impacts of firearm regulation. My analysis uses 20 years of administrative data from California, recording all licit handgun purchases in the state, the consumer and retailer in each transaction, and the universe of gun and non-gun fatalities. Isolating variation from the entry timing of firearm retailers in local markets, the presence of a first firearm retailer increases handgun purchases by 30 percent. The purchases on the margin of retailer entry are made by both repeat and first-time handgun purchasers, and these marginal handgun owners increase both homicide and suicide fatalities. To study the trade-off between consumer surplus and public health, I develop and estimate a model of consumer handgun purchase and its impact on fatalities. My estimates imply that handgun owners are adversely selected—those with a higher willingness to pay for a handgun also generate more expected fatalities—such that the expected public health costs of handgun ownership outweigh the private benefits of handgun purchase. Using the model to simulate counterfactual policies, California’s 2024 statewide sales tax on firearm purchase approximately maximizes tax revenues, but is too low when jointly accounting for consumer surplus and public health. More efficient policies target high tax rates to areas where marginal handgun purchasers have lower willingness to pay and higher expected fatalities. In particular, county-specific taxes could achieve a larger reduction in homicides and a smaller drop in consumer surplus by setting high tax rates around San Francisco and Los Angeles, while leaving the rest of the state at the status quo.