Vice Squad
Wednesday, September 12, 2007
Legalization and the Black Market

In some areas where prostitution is legal, illegal variants of prostitution still seem to flourish. (They might be illegal because the prostitutes are underage, undocumented, or ineligible or unwilling to work in the legal sector for some other reason, or just for tax evasion.) I have often compared this situation with alcohol in the US, where the legal sector, though taxed significantly, seems to outcompete the illegal sector, almost eliminating it. Phil Cook's Paying the Tab, however, indicates that the comparative success of the legal alcohol sector after Prohibition was far from automatic. "Initial liquor tax collections were disappointingly low, in part because the bootleggers continued to supply something like 45 million gallons per year (66 percent of the tax paid amount) [p. 30, reference omitted]." The Feds responded with a massive surge in enforcement and some new regulations that aided their efforts, resulting "in a considerable shrinking of the black market by 1937 [p. 31]."

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