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Difference-in-Differences in Equilibrium: Evidence from Place-Based Policies

Author

Listed:
  • Alves, Guillermo
  • Burton, William H.
  • Fleitas, Sebastian
Abstract
Violations of the stable unit treatment value assumption (SUTVA) are a common threat to identification of the equilibrium effects of policies. We show that the difference-indifferences estimator can be decomposed into three effects (autarky, re-sorting and contamination) and provide a formula to compute the contamination effect using the partial derivatives of supply and demand. We illustrate our argument by studying a large place-based tax break for housing construction in Uruguay. Overall, we find that SUTVA violations account for 25% of the effect on subsidized areas and lead to a sizable underestimation of the incidence of the tax break.

Suggested Citation

  • Alves, Guillermo & Burton, William H. & Fleitas, Sebastian, 2024. "Difference-in-Differences in Equilibrium: Evidence from Place-Based Policies," CEPR Discussion Papers 18916, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18916
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    More about this item

    Keywords

    Difference-in-differences; Spillovers;

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • L78 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Government Policy

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