Question

Consider the regression example from your textbook, which estimates the effect of beer taxes on fatality rates across the 48 contiguous U.S. states. If beer taxes were set nationally by the federal government rather than by the states, then A. it would not make sense to use state fixed effect. B. you can test state fixed effects using homoskedastic-only standard errors. C. the OLS estimator will be biased. D. you should not use time fixed effects since beer taxes are the same at a point in time across states.

Answer 1

Answer:

D. You should not use time fixed effects since beer taxes are the same at a point in time across states.

Explanation:

The beer taxes are set by the government of the U.S. The fatality rates are estimated and then regression equation is set to identify any relation between the beer taxes and fatality rates. The U.S. government should not use fixed time effects, the beer taxes are same in all different states of the U.S.