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How Much Should We Trust Regression-Kink-Design Estimates?

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  • Ando, Michihito

    () (Uppsala Center for Fiscal Studies)

Abstract

In a Regression Kink (RK) design with a finite sample, a confounding smooth nonlinear relationship between an assignment variable and an outcome variable around a threshold can be spuriously picked up as a kink and result in a biased estimate. In order to investigate how well RK designs handle such confounding nonlinearity, I firstly implement Monte Carlo simulations and then study the effect of fiscal equalization grants on local expenditure using a RK design. Results suggest that RK estimation with a confounding nonlinearity often suffers from bias or imprecision and estimates are credible only when relevant covariates are controlled for.

Suggested Citation

  • Ando, Michihito, 2013. "How Much Should We Trust Regression-Kink-Design Estimates?," Working Paper Series, Center for Fiscal Studies 2013:15, Uppsala University, Department of Economics.
  • Handle: RePEc:hhs:uufswp:2013_015
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    Cited by:

    1. Sarah Bana & Kelly Bedard & Maya Rossin-Slater, 2018. "The Impacts of Paid Family Leave Benefits: Regression Kink Evidence from California Administrative Data," NBER Working Papers 24438, National Bureau of Economic Research, Inc.
    2. repec:spr:empeco:v:53:y:2017:i:3:d:10.1007_s00181-016-1155-8 is not listed on IDEAS
    3. David Card & David S. Lee & Zhuan Pei & Andrea Weber, 2015. "Inference on Causal Effects in a Generalized Regression Kink Design," Econometrica, Econometric Society, vol. 83, pages 2453-2483, November.
    4. Michihito Ando, 2017. "How much should we trust regression-kink-design estimates?," Empirical Economics, Springer, vol. 53(3), pages 1287-1322, November.
    5. Damon Jones & Alexander M. Gelber & Daniel W. Sacks & Jae Song, 2017. "Using Kinked Budget Sets to Estimate Extensive Margin Responses: Method and Evidence from the Social Security Earnings Test," Working Papers 2017-034, Human Capital and Economic Opportunity Working Group.
    6. David Card & David S. Lee & Zhuan Pei & Andrea Weber, 2017. "Regression Kink Design: Theory and Practice," Advances in Econometrics,in: Regression Discontinuity Designs, volume 38, pages 341-382 Emerald Publishing Ltd.
    7. Alexander M. Gelber & Damon Jones & Daniel W. Sacks & Jae Song, 2017. "Using Non-Linear Budget Sets to Estimate Extensive Margin Responses: Method and Evidence from the Social Security Earnings Test," NBER Working Papers 23362, National Bureau of Economic Research, Inc.
    8. repec:eee:jhecon:v:61:y:2018:i:c:p:178-192 is not listed on IDEAS
    9. Alexander Gelber & Timothy J. Moore & Alexander Strand, 2017. "The Effect of Disability Insurance Payments on Beneficiaries' Earnings," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 229-261, August.
    10. Ganong, Peter & Jäger, Simon, 2014. "A Permutation Test and Estimation Alternatives for the Regression Kink Design," IZA Discussion Papers 8282, Institute of Labor Economics (IZA).
    11. repec:taf:jnlasa:v:113:y:2018:i:522:p:494-504 is not listed on IDEAS
    12. Peter Ganong & Simon Jäger, 2018. "A Permutation Test for the Regression Kink Design," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 113(522), pages 494-504, April.
    13. repec:hrv:faseco:34222894 is not listed on IDEAS

    More about this item

    Keywords

    Regression Kink Design; Endogenous regressors; Intergovernmental grants; Flypaper effect;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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