Intersystem return on investment in public mental health: Positive externality of public mental health expenditure for the jail system in the U.S.

- Greater public inpatient mental health spending reduces jail populations.
- Greater community mental health spending also decreases jail inmates.
- There is an intersystem return on investment (ROI) in public mental health.
- The intersystem ROI is larger for public inpatient mental health spending.

This study examines the extent to which increased public mental health expenditures lead to a reduction in jail populations and computes the associated intersystem return on investment (ROI). We analyze unique panel data on 44 U.S. states and D.C. for years 2001-2009. To isolate the intersystem spillover effect, we exploit variations across states and over time within states in per capita public mental health expenditures and average daily jail inmates. Regression models control for a comprehensive set of determinants of jail incarcerations as well as unobserved determinants specific to state and year. Findings show a positive spillover benefit of increased public mental health spending on the jail system: a 10% increase in per capita public inpatient mental health expenditure on average leads to a 1.5% reduction in jail inmates. We also find that the positive intersystem externality of increased public inpatient mental health expenditure is greater when the level of community mental health spending is lower. Similarly, the intersystem spillover effect of community mental health expenditure is larger when inpatient mental health spending is lower. We compute that overall an extra dollar in public inpatient mental health expenditure by a state would yield an intersystem ROI of a quarter dollar for the jail system. There is significant cross-state variation in the intersystem ROI in both public inpatient and community mental health expenditures, and the ROI overall is greater for inpatient mental health spending than for community mental health spending.