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Difference-in-Differences Methods in Public Finance

Author

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  • Travis St. Clair
  • Thomas D. Cook

Abstract

Recognizing that cross-sectional data are often insufficient to address the identification problems associated with estimating the effect of government taxation or spending, economists engaged in public finance research often utilize longitudinal data that span the period over which a policy change occurred. As economic data have proliferated over the last decade, uses of the difference-in-differences design and its variations have become more numerous. Nevertheless, published research that invokes difference-in-differences commonly fails to present evidence and reasoning that enable the reader to properly evaluate the causal claims under investigation. In this paper, we examine the threats to internal validity that exist when using difference-in-differences for causal inference and review variations of the design that can be used to address these threats. Next, we survey the public finance literature in order to examine the ways that these threats are addressed in practice. We conclude by proposing a number of recommendations for researchers to consider as they implement difference-in-differences as an empirical strategy.

Suggested Citation

  • Travis St. Clair & Thomas D. Cook, 2015. "Difference-in-Differences Methods in Public Finance," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(2), pages 319-338, June.
    • Handle: RePEc:ntj:journl:v:68:y:2015:i:2:p:319-338
    DOI: 10.17310/ntj.2015.2.04
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    Cited by:

    1. Bilach, Thomas J. & Roche, Sean Patrick & Wawro, Gregory J., 2020. "The Effects of the Summer All Out Foot Patrol Initiative in New York City: A Difference-in-Differences Approach," SocArXiv ep4fs, Center for Open Science.
    2. Christopher Bennett & Brent Evans & Christopher Marsicano, 2021. "Taken for Granted? Effects of Loan-Reduction Initiatives on Student Borrowing, Admission Metrics, and Campus Diversity," Research in Higher Education, Springer;Association for Institutional Research, vol. 62(5), pages 569-599, August.
    3. Leonie Herrmann, 2017. "Mittelstandsanleihen und ihre privaten Investoren [German SME-bonds and their private investors]," Schmalenbach Journal of Business Research, Springer, vol. 69(3), pages 245-273, September.
    4. Dave Goyvaerts & Annelies Roggeman, 2020. "The Impact of Thin Capitalization Rules on Subsidiary Financing: Evidence from Belgium," De Economist, Springer, vol. 168(1), pages 23-51, March.
    5. Asatryan, Zareh & Castellón, César & Stratmann, Thomas, 2018. "Balanced budget rules and fiscal outcomes: Evidence from historical constitutions," Journal of Public Economics, Elsevier, vol. 167(C), pages 105-119.
    6. Sudak Gennadiy & Yuliia Savchenko, 2021. "Does Household Tax Burden Have an Impact on Individuals’ Savings in Banks? The Case of Ukraine," Central European Economic Journal, Sciendo, vol. 8(55), pages 378-389, January.
    7. Rogers A Lumenyela & Provident Dimosso & Tafuteni Chusi, 2023. "Private- Cooperatives Synergy in the Face of Agricultural Policy Changes: Moral Hazard Behavior Ameliorated? An Experience from Coffee Cooperatives in Southern Highlands, Tanzania," Journal of Economics and Behavioral Studies, AMH International, vol. 14(4), pages 11-21.
    8. Chong Ye & Yanhong Zheng & Shanlang Lin & Zhaoyang Zhao, 2022. "The Impact of High-Speed Railway Opening on Regional Economic Growth: The Case of the Wuhan–Guangzhou High-Speed Railway Line," Sustainability, MDPI, vol. 14(18), pages 1-22, September.
    9. Wang, Lisha & Miwa, Tomio & Jiang, Meilan & Morikawa, Takayuki, 2021. "Heterogeneous residential distribution changes and spillover effects by railway projects: The case study of Nagoya, Japan," Transportation Research Part A: Policy and Practice, Elsevier, vol. 154(C), pages 145-163.
    10. Joseph B. Sobieralski & Sarah M. Hubbard, 2020. "The Effect of Jet Fuel Tax Changes on Air Transport, Employment, and the Environment in the US," Sustainability, MDPI, vol. 12(8), pages 1-15, April.
    11. Wenqing Zhang & Jingrong Dong, 2023. "The Polarization Effect and Mechanism of China’s Green Finance Policy on Green Technology Innovation," Sustainability, MDPI, vol. 15(13), pages 1-26, June.
    12. Chen, Yu & Gu, Xin & Gao, Yongqiang & Lan, Tian, 2021. "Sustainability with high-speed rails: The effects of transportation infrastructure development on firms’ CSR performance," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(2).
    13. Taylor K. Odle & Jennifer A. Delaney, 2022. "You are Admitted! Early Evidence on Enrollment from Idaho’s Direct Admissions System," Research in Higher Education, Springer;Association for Institutional Research, vol. 63(6), pages 899-932, September.
    14. Eric James Stokan, 2019. "An Estimate of the Local Economic Impact of State-Level Earned Income Tax Credits," Economic Development Quarterly, , vol. 33(3), pages 170-186, August.
    15. Sam Sims & Asma Benhenda, 2022. "The effect of financial incentives on the retention of shortage-subject teachers: evidence from England," CEPEO Working Paper Series 22-04, UCL Centre for Education Policy and Equalising Opportunities, revised Apr 2022.

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