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Another Look At What To Do With Time-Series Cross-Section Data

  • Xiujian Chen

    (University of Oklahoma)

  • Shu Lin

    (University of Oklahoma)

  • W. Robert Reed

    (University of Oklahoma)

Our study revisits Beck and Katz’ (1995) comparison of the Parks and PCSE estimators using time-series, cross-sectional data (TSCS). Our innovation is that we construct simulated statistical environments that are designed to closely match “real-world,” TSCS data. We pattern our statistical environments after income and tax data on U.S. states from 1960-1999. While PCSE generally does a better job than Parks in estimating standard errors, it too can be unreliable, sometimes producing standard errors that are substantially off the mark. Further, we find that the benefits of PCSE can come at a substantial cost in estimator efficiency. Based on our study, we would give the following advice to researchers using TSCS data: Given a choice between Parks and PCSE, we recommend that researchers use PCSE for hypothesis testing, and Parks if their primary interest is accurate coefficient estimates.

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File URL: http://econwpa.repec.org/eps/em/papers/0506/0506004.pdf
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Paper provided by EconWPA in its series Econometrics with number 0506004.

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Length: 26 pages
Date of creation: 08 Jun 2005
Date of revision:
Handle: RePEc:wpa:wuwpem:0506004
Note: Type of Document - pdf; pages: 26
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Joseph DeJuan & Maria J. Luengo-Prado, 2005. "Consumption and Aggregate Constraints: International Evidence," Macroeconomics 0501018, EconWPA.
  2. Jönsson, Kristian, 2003. "Cross-sectional dependency and size distortion in a small-sample homogeneous panel-data unit root test," Working Papers 2003:10, Lund University, Department of Economics.
  3. L. Nunziata, 2002. "Institutions and Wage Determination: A Multi-Country Approach," Working Papers 433, Dipartimento Scienze Economiche, Universita' di Bologna.
  4. Kwok Tong Soo, 2004. "Zipfs Law for Cities: A Cross Country Investigation," CEP Discussion Papers dp0641, Centre for Economic Performance, LSE.
  5. Helms, L Jay, 1985. "The Effect of State and Local Taxes on Economic Growth: A Time Series-Cross Section Approach," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 574-82, November.
  6. Woojin Lee & John E. Roemer, 2005. "The Rise and Fall of Unionised Labour Markets: A Political Economy Approach," Economic Journal, Royal Economic Society, vol. 115(500), pages 28-67, 01.
  7. Reed, W. Robert, 2006. "Democrats, republicans, and taxes: Evidence that political parties matter," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 725-750, May.
  8. Brulhart, Marius & Trionfetti, Federico, 2004. "Public expenditure, international specialisation and agglomeration," European Economic Review, Elsevier, vol. 48(4), pages 851-881, August.
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