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November 23, 2011

Cluster-Seminar Public Finances and Living Conditions

When can we trust population thresholds in regression discontinuity designs


November 23, 2011
12:30 - 13:30


DIW Berlin im Quartier 110
Room 5.2.010
Mohrenstraße 58
10117 Berlin


Florian Ade, Ronny Freier

A recent literature uses variation just around legislative population thresholds to identify causal effects of institutional changes. We review the use of regression discontinuity designs using such thresholds. Our concern is threefold: (1) simultaneous exogenous (co-)treatment, (2) simultaneous endogenous choices and (3) manipulation and precise control over population measures. Revisiting the study by Egger and Koethenbuerger (2010), who analyse the relationship between council size and government spending, we present new evidence that these concerns matter for causal analysis. Our results suggest that empirical designs using population thresholds should be used with utmost care and confidence in the precise institutional setting.