Evaluating the Economic Impact of Marijuana Legalization: A Difference-in-Differences and Regression Analysis of Household Expenditures in Colorado and Utah

Abstract

The legalization of marijuana in Colorado in 2014 marked a significant policy shift with potential economic implications. This study examines the impact of this legalization on household expenditures using Utah as a control group. The research employs a Difference-in-Differences (DiD) methodology, analyzing data from the Consumer Expenditure Survey (CEX) from 2012 to 2016. The findings indicate a significant increase in household expenditures in Colorado relative to Utah following marijuana legalization. The DiD estimate reveals an approximate increase of $898 in total household expenditures post-legalization. These results are supported by regression models that account for various household characteristics, ensuring robustness. In conclusion, marijuana legalization in Colorado has led to a measurable increase in household spending. This study provides valuable insights for policymakers and contributes to the understanding of the economic effects of marijuana policy changes. For household departments, it's essential to consider the potential shifts in budget allocation due to increased discretionary spending. Government agencies should monitor these economic impacts closely to inform future regulatory decisions and ensure balanced economic growth.