Economics Research Seminar

As climate change intensifies, policymakers increasingly rely on instruments like carbon taxes to reduce emissions. Evaluating the real-world effectiveness of such policies is essential, particularly using robust empirical methods. This study revisits an SCM-based evaluation, which attributed substantial reductions in transport emissions to Finland’s 1990 carbon tax. We replicate the analysis and assess its robustness through a series of sensitivity checks. Following the original methodology, we reconstruct the synthetic counterfactual for Finland using a donor pool of 20 OECD countries from 1970–2005. While our replication broadly replicates the structure of the original analysis, we find that the results are highly sensitive to donor pool composition. In particular, the inclusion of Luxembourg, due to its unique economic profile and fuel tourism, exerts undue influence on the synthetic control. Once excluded, the treatment effect becomes statistically insignificant. Our findings highlight the critical, yet often underappreciated, importance of donor pool selection in SCM. We offer guidance for applied researchers to improve transparency and robustness in SCM-based policy evaluations.