Geographic RDD design and synthetic control method. Application to the election of Green-Red 2011 in Baden-Wurttemberg

Martin Schaller

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Master's Thesis from the year 2019 in the subject Economics - Micro-economics, grade: 1,0, University of Mannheim, language: Engl...

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Master's Thesis from the year 2019 in the subject Economics - Micro-economics, grade: 1,0, University of Mannheim, language: English, abstract: The thesis offers a novel perspective on the election and political economy. To my knowledge there has not been an examination of its kind (event study approach using RDD and SCM) of subnational German political economy. It has methodological value for SCM - it presents a novel application of SCM to Germany. Moreover, it uses a valid method of inference to assess the estimates. The thesis is also a novelty in the application of RDD as it is applied to the smallest administrative level in Germany in questions of economic policy. Economists use events to study causality. This thesis rides this wave with an event study of the surprise victory of Green-Red in the German federal election of Baden-Wurttemberg in 2011, using it as exogenous shock in (expected) government policy (short-as well as long-term), going from "pro-market" to more "social democratic" and "interventionist". I apply the synthetic control method (SCM) by Abadie and Gardeazabal (2003) and the regression-discontinuity (RDD) approach by Calonico et al. (2015) and Imbens and Wager (2019) to statistical data from Germany of municipalities, counties, and states. In the RDD approach I use the border between both states as cut-off.