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In a generalized Difference in Difference for staggered year event, from this discussion, we need to include the event year to the sample.

For example, if Korea passed the law in 1997, so post*treat should receive the value of 0 for 1995 and 1996 while it receives the value of 1 for 1997,1998,1999,2000,2001,2002.

I am wondering if I can exclude the year 1997 in this case out of my sample, is there any justification for this exclusion. I mean, post*treat equals to 0 for 1995 and 1996 while it receives value of 1 for 1998,1999,2000,2001,2002.

If this exclusion is wrong, so I am wondering why it is wrong.

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    $\begingroup$ Why do you want to exclude 1997? $\endgroup$ May 28 at 23:47
  • $\begingroup$ @ThomasBilach I just asked of my curiousity, Thomas. Because I want to know "what if" to make sure I understand the setting thoroughly $\endgroup$
    – Louise
    May 30 at 20:46
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Unless the model is fully saturated with treatment indicators to show the full dynamic response to treatment, then I see no justifiable reason to exclude a period, let alone excluding the immediate adoption year. And even when we do include a full series of lead/lag indicators, we typically exclude a pre-treatment year. You could drop the year before treatment, or a more distant period. However, excluding the initial adoption year is very rare in practice.

I suppose if you suspect effects kick in with a one year lag, then excluding the year of adoption seems warranted, but again it's rare. Maybe it took a long time for treated firms in Korea to adapt to the new law/policy. Even then, I wouldn't recommend excluding a period unless the model was saturated. If only a finite number of pre-treatment "leads" were considered (i.e., 2 leads), then all the years before 1995 may serve as a reference.

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  • $\begingroup$ Thanks Thomas. However, regarding "And even when we do include a full series of lead/lag indicators, we typically exclude a pre-treatment year", is there any reference or justification for this statement then? $\endgroup$
    – Louise
    May 30 at 23:31
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    $\begingroup$ The justification is that we need a reference period. In most impact evaluations the authors typically drop the period immediately before treatment. You could use a more distant period but this is not as common, at least in the literature I've encountered on this topic. $\endgroup$ Jun 1 at 21:49
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    $\begingroup$ And by "reference" I mean the pre-treatment epoch. In a typical event study framework evaluators may assess effects in all periods before and after treatment. In essence, we're assessing the evolution of effects in reference to the omitted period. $\endgroup$ Jun 1 at 21:52
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    $\begingroup$ The period we omit is our reference period. In applied work, evaluators typically drop a pre-treatment period. The period you omit is up to you, but the period immediately before treatment starts is a popular choice. Does that make sense? $\endgroup$ Jun 2 at 21:53
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    $\begingroup$ It makes totally sense now, thank you so much $\endgroup$
    – Louise
    Jun 2 at 22:17

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