In estimating a fixed effects model using panel data, which of the following variables will not be effective controls if you use a full set of (cross sectional) fixed effects for individuals?
A) Year to year changes in income for individuals
B) Yearly (cumulative) education attainment for individuals
C) Income taxes paid
D) Birthplace of the individual

Question

Quizplus · Accepted Answer

If you are using a full set of fixed effects for individuals, you are essentially controlling for all individual-specific factors, including birthplace. Therefore, birthplace would not be an effective control variable in this case as it is already accounted for in the fixed effects. Variables such as year to year changes in income, cumulative education attainment, and income taxes paid would still be useful control variables as they vary within individuals over time and are not fully accounted for by the fixed effects.

In Estimating a Fixed Effects Model Using Panel Data, Which