How Do Local Government Finances Respond to the Opioid Epidemics? Evidence From Hydrocodone Rescheduling

Abstract

The opioid epidemic has dramatically impacted communities across the United States. According to the Center for Disease Control statistics, more than 72,000 people died from an overdose in 2017, of which two-thirds were opioid-related. In this study, I address the effects of such an epidemic directly on the finances of local governments. Specifically, I use the exposure to hydrocodone prescriptions and the rescheduling among regulated substances by the DEA as a source of exogenous variation and compare results in three settings: standard difference-in-difference, and counterfactual created using nearest neighbors regression and generalized random forests. I find that the rescheduling led to an increase in health expenditures driven mainly by localities that are still, as of 2016, suffering the epidemics. This is consistent for the standard difference-in-difference as well as for the nearest neighbor regressions. A similar finding is obtained using generalized random forests with noisier estimates, however, heterogeneity is determined by race, education, and prevalence of rural population instead of overdose rates.

Keywords: opioid epidemics, local government finances, local government budgets

JEL Classification: H51, H12, H61