When Is Parallel Trends Sensitive to Functional Form?

By Jonathan Roth, Pedro H. C. Sant’Anna. Econometrica, 2020

121 citations recorded by the source corpus.

This paper assesses when the validity of difference‐in‐differences depends on functional form. We provide a novel characterization: the parallel trends assumption holds under all strictly monotonic transformations of the outcome if and only if a stronger “parallel trends”‐type condition holds for the cumulative distribution function of untreated potential outcomes. This condition for parallel trends to be insensitive to functional form is satisfied if and essentially only if the population can be partitioned into a subgroup for which treatment is effectively randomly assigned and a remaining subgroup for which the distribution of untreated potential outcomes is stable over time. These conditions have testable implications, and we introduce falsification tests for the null that parallel trends is insensitive to functional form.

Subfields: Statistics and Probability

View Paper: https://www.semanticscholar.org/paper/16e842f352e81bbdd28f01b63e4f37e7eb962bde

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In Statistics and Probability

1. A. Baker
2. David F. Larcker
3. Charles C. Y. Wang

Citations in the corpus

• How Much Should We Trust Staggered Difference-In-Differences Estimates? (2021, methodology): “In addition, this bounding approach can be used to test whether and how much DiD estimates depend on the functional form of the outcome (Roth and Sant’Anna, 2020).”