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Decoupling synthetic control methods to ensure stability, accuracy and meaningfulness

Author

Listed:
  • Daniel Albalate

    (Universitat de Barcelona)

  • Germà Bel

    (Universitat de Barcelona)

  • Ferran A. Mazaira-Font

    (Universitat de Barcelona)

Abstract

The synthetic control method (SCM) is widely used to evaluate causal effects under quasi-experimental designs. However, SCM suffers from weaknesses that compromise its accuracy, stability and meaningfulness, due to the nested optimization problem of covariate relevance and counterfactual weights. We propose a decoupling of both problems. We evaluate the economic effect of government formation deadlock in Spain-2016 and find that SCM method overestimates the effect by 0.23 pp. Furthermore, we replicate two studies and compare results from standard and decoupled SCM. Decoupled SCM offers higher accuracy and stability, while ensuring the economic meaningfulness of covariates used in building the counterfactual.

Suggested Citation

  • Daniel Albalate & Germà Bel & Ferran A. Mazaira-Font, 2021. "Decoupling synthetic control methods to ensure stability, accuracy and meaningfulness," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 12(4), pages 549-584, December.
    • Handle: RePEc:spr:series:v:12:y:2021:i:4:d:10.1007_s13209-021-00242-8
    DOI: 10.1007/s13209-021-00242-8
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    More about this item

    Keywords

    Synthetic control; SHAP; Regularization; Quasi-experiments; Causality; Government;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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