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A Guide to Using the Synthetic Control Method to Quantify the Effects of Shocks, Policies, and Shocking Policies

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  • Bibek Adhikari

Abstract

Governments introduce various policies intending to improve the overall economy or to influence individual behavior. However, estimating the causal impact of these policies is challenging. I describe how the Synthetic Control Method (SCM) can be used in undergraduate econometrics or capstone courses to estimate the impact of economic policies. The SCM is a data-driven design that provides a systematic way of constructing a comparison group that looks very similar to the group implementing the policy. Thus, it allows us to estimate the policy’s impact by comparing the outcome variable’s post-policy path between the policy group and the comparison group. I review a broad range of policies and events that are analyzed using this method, briefly describe the theory behind the method, discuss various best practices, and provide a step-by-step implementation guide using the adoption of a value-added tax (VAT) by France as an example. JEL Classifications : C01, A1, A2

Suggested Citation

  • Bibek Adhikari, 2022. "A Guide to Using the Synthetic Control Method to Quantify the Effects of Shocks, Policies, and Shocking Policies," The American Economist, Sage Publications, vol. 67(1), pages 46-63, March.
    • Handle: RePEc:sae:amerec:v:67:y:2022:i:1:p:46-63
    DOI: 10.1177/05694345211019714
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    Cited by:

    1. Bilbao-Goyoaga, Eugenia, 2023. "Perceptions Matter: Quasi-Experimental Evidence on the Effects of Minimum Income on Objective and Subjective Financial Wellbeing in Spain," SocArXiv wv7xt, Center for Open Science.

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    More about this item

    Keywords

    synthetic control method; applied econometrics; policy evaluation;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • A1 - General Economics and Teaching - - General Economics
    • A2 - General Economics and Teaching - - Economic Education and Teaching of Economics

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