Panel data analysis in comparative politics: Linking method to theory

TLDR

Panel data analyses with lagged dependent variables and period/unit dummies suffer from absorption of cross‑sectional and time‑series variance, lag‑structure mis‑specification, and parameter heterogeneity. The article re‑examines Garrett and Mitchell’s study to identify and address four sources of problems in panel data analyses. The authors propose substantial revisions to the estimation strategy and model specification. Using the revised approach, the authors find that Garrett and Mitchell’s results are not robust and that partisan politics and socioeconomic factors such as aging and unemployment significantly influence government‑spending variance. Abstract.

Abstract

Abstract. Re‐analyzing a study of Garrett and Mitchell (‘Globalization, government spending and taxation in the OECD’, European Journal of Political Research 39(2) (2001): 145–177), this article addresses four potential sources of problems in panel data analyses with a lagged dependent variable and period and unit dummies (the de facto Beck‐Katz standard). These are: absorption of cross‐sectional variance by unit dummies, absorption of time‐series variance by the lagged dependent variable and period dummies, mis‐specification of the lag structure, and neglect of parameter slope heterogeneity. Based on this discussion, we suggest substantial changes of the estimation approach and the estimated model. Employing our preferred methodological stance, we demonstrate that Garrett and Mitchell's findings are not robust. Instead, we show that partisan politics and socioeconomic factors such as aging and unemployment as expected by theorists have a strong impact on the time‐series and cross‐sectional variance in government spending.