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

Michihito Ando

No 2013:15, Working Paper Series, Center for Fiscal Studies from Uppsala University, Department of Economics

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.

Keywords: Regression Kink Design; Endogenous regressors; Intergovernmental grants; Flypaper effect (search for similar items in EconPapers)
JEL-codes: C13 C21 H71 H72 H77 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2013-11-11
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: How much should we trust regression-kink-design estimates? (2017)
Working Paper: How Much Should We Trust Regression-Kink-Design Estimates? (2013)
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