A Guide to Using the Synthetic Control Method to Quantify the Effects of Shocks, Policies, and Shocking Policies

Bibek Adhikari

The American Economist, 2022, vol. 67, issue 1, 46-63

Abstract: Governments introduce various policies intending to improve the overall economy or to influence individual behavior. However, estimating the causal impact of these policies is challenging. I describe how the Synthetic Control Method (SCM) can be used in undergraduate econometrics or capstone courses to estimate the impact of economic policies. The SCM is a data-driven design that provides a systematic way of constructing a comparison group that looks very similar to the group implementing the policy. Thus, it allows us to estimate the policy’s impact by comparing the outcome variable’s post-policy path between the policy group and the comparison group. I review a broad range of policies and events that are analyzed using this method, briefly describe the theory behind the method, discuss various best practices, and provide a step-by-step implementation guide using the adoption of a value-added tax (VAT) by France as an example. JEL Classifications : C01, A1, A2

Keywords: synthetic control method; applied econometrics; policy evaluation (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:amerec:v:67:y:2022:i:1:p:46-63

DOI: 10.1177/05694345211019714

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