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Difference-in-Discontinuities: Estimation, Inference and Validity Tests

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  • Pedro Picchetti
  • Cristine C. X. Pinto
  • Stephanie T. Shinoki

Abstract

This paper investigates the econometric theory behind the newly developed difference-in-discontinuities design (DiDC). Despite its increasing use in applied research, there are currently limited studies of its properties. The method combines elements of regression discontinuity (RDD) and difference-in-differences (DiD) designs, allowing researchers to eliminate the effects of potential confounders at the discontinuity. We formalize the difference-in-discontinuity theory by stating the identification assumptions and proposing a nonparametric estimator, deriving its asymptotic properties and examining the scenarios in which the DiDC has desirable bias properties when compared to the standard RDD. We also provide comprehensive tests for one of the identification assumption of the DiDC. Monte Carlo simulation studies show that the estimators have good performance in finite samples. Finally, we revisit Grembi et al. (2016), that studies the effects of relaxing fiscal rules on public finance outcomes in Italian municipalities. The results show that the proposed estimator exhibits substantially smaller confidence intervals for the estimated effects.

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  • Pedro Picchetti & Cristine C. X. Pinto & Stephanie T. Shinoki, 2024. "Difference-in-Discontinuities: Estimation, Inference and Validity Tests," Papers 2405.18531, arXiv.org.
    • Handle: RePEc:arx:papers:2405.18531
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    References listed on IDEAS

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