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IZA Discussion Paper No. 17217
August 2024
Striking the Right Balance: Why Standard Balance Tests Over-Reject the Null, and How to Fix It
Jason Kerwin, Nada Rostom, Olivier Sterck

Economists often use balance tests to demonstrate that the treatment and control groups are comparable prior to an intervention. We show that typical implementations of balance tests have poor statistical properties. Pairwise t-tests leave it unclear how many rejections indicate overall imbalance. Omnibus tests of joint orthogonality, in which the treatment is regressed on all the baseline covariates, address this ambiguity but substantially over-reject the null hypothesis using the sampling-based p-values that are typical in the literature. This problem is exacerbated when the number of covariates is high compared to the number of observations. We examine the performance of alternative tests, and show that omnibus F-tests of joint orthogonality with randomization inference p-values have the correct size and reasonable power. We apply these tests to data from two prominent recent articles, where standard F-tests indicate imbalance, and show that the study arms are actually balanced when appropriate tests are used.

Communications
Mark Fallak
mark.fallak@liser.lu
+352 585-855-526
World of Labour
Olga Nottmeyer
olga.nottmeyer@liser.lu
+352 585-855-501
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Christina Gathmann
christina.gathmann@liser.lu

The IZA@LISER Network is a global community of scholars dedicated to excellence in labor economics and related fields, now coordinated at the Luxembourg Institute of Socio-Economic Research (LISER) following its transition from Bonn.

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