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Difference-in-Difference Causal Forests, with an Application to Payroll Tax Incidence in Norway

Author

Listed:
  • Evelina Gavrilova
  • Audun Langørgen
  • Floris T. Zoutman
  • Floris Zoutman

Abstract

This paper introduces the difference-in-difference causal forest (DiDCF) method, which extends Wager and Athey’s (2018) causal-forest technique for estimating heterogeneous treatment effects to settings with dynamic treatment effects. Regular causal forests require independence between treatment assignment and the outcome variable (after conditioning out observables). In contrast, DiDCFs provide consistent estimates with a parallel trend assumption. DiDCFs can be used to create event-study plots. The method is applied to estimate payroll tax incidence on wages. We find that heterogeneity in incidence is explained by firm- and workforce-level variables. Firms with a large and heterogeneous workforce are most effective in passing on the incidence of the payroll tax to workers.

Suggested Citation

  • Evelina Gavrilova & Audun Langørgen & Floris T. Zoutman & Floris Zoutman, 2023. "Difference-in-Difference Causal Forests, with an Application to Payroll Tax Incidence in Norway," CESifo Working Paper Series 10532, CESifo.
    • Handle: RePEc:ces:ceswps:_10532
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp10532.pdf
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    Citations

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    Cited by:

    1. Gregory Faletto, 2023. "Fused Extended Two-Way Fixed Effects for Difference-in-Differences With Staggered Adoptions," Papers 2312.05985, arXiv.org, revised Oct 2024.
    2. Vinish Shrestha, 2024. "Heterogeneous Impacts of ACA-Medicaid Expansion on Insurance and Labor Market Outcomes in the American South," Working Papers 2024-08, Towson University, Department of Economics, revised Jun 2024.
    3. Mark Kattenberg & Bas Scheer & Jurre Thiel, 2023. "Causal forests with fixed effects for treatment effect heterogeneity in difference-in-differences," CPB Discussion Paper 452, CPB Netherlands Bureau for Economic Policy Analysis.

    More about this item

    Keywords

    causal forest; parallel trends; treatment effect heterogeneity; payroll tax incidence; administrative data;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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