Economic Benefits and Social Costs of Legalizing Recreational Marijuana

Jason Brown, Elior Cohen and Alison Felix

No RWP 23-10, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: We analyze the effects of legalizing recreational marijuana on state economic and social outcomes (2000–20) using difference-in-differences estimation robust to staggered timing and heterogeneity of treatment. We find moderate economic gains accompanied by some social costs. Post-legalization, average state income grew by 3 percent, house prices by 6 percent, and population by 2 percent. However, substance use disorders, chronic homelessness, and arrests increased by 17, 35, and 13 percent, respectively. Although some of our estimates are noisy, our findings suggest that the economic benefits of legalization are broadly distributed, while the social costs may be more concentrated among individuals who use marijuana heavily. States that legalized early experienced similar social costs but larger economic gains, implying a potential first-mover advantage.

Keywords: marijuana; Cannabis; social costs; State Revenue; government policy; Tax revenue; legalization (search for similar items in EconPapers)
JEL-codes: H71 I18 R52 (search for similar items in EconPapers)
Pages: 64
Date: 2023-09-29
New Economics Papers: this item is included in nep-hea and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedkrw:97175

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DOI: 10.18651/RWP2023-10

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