State Capacity and Public Goods: Institutional Change, Human Capital, and Growth in Early Modern Germany

Abstract

What are the origins and consequences of the state as a provider of public goods? We study legal reforms that established mass public education and increased state capacity in German cities during the 1500s. These fundamental changes in public goods provision occurred where ideological competition during the Protestant Reformation interacted with popular politics at the local level. We document that cities that formalized public goods provision in the 1500s began differentially producing and attracting upper tail human capital and grew to be significantly larger in the long-run. We study plague outbreaks in a narrow time period as exogenous shocks to local politics and find support for a causal interpretation of the relationship between public goods institutions, human capital, and growth. More broadly, we provide evidence on the origins of state capacity directly targeting welfare improvement.

Religious Competition and Reallocation: The Political Economy of Secularization in the Protestant Reformation

“…11 This gap in the literature has been noted by Becker et al (2016). Dittmar and Meisenzahl (2016) provide evidence on both long-and short-run consequences of the Reformation operating through changes in city-level institutions that varied across Protestant cities, highlighting within-Protestant differences, as opposed to territory-level differences in religion we study here.…”

“…We discuss the implications of such ambiguity further below. 4 The important roles played by human capital elites in European history have been explored by Mokyr (2009); Cantoni and Yuchtman (2014); Squicciarini and Voigtländer (2015); Dittmar and Meisenzahl (2016). We build on their work by discussing a specific source of variation in university students' selection into fields of study and careers.…”

Causes and consequences of the Protestant Reformation

“…22 Dittmar and Meisenzahl (2016) further sub-divide the set of Protestant cities into cities that formalized the Reformation in Church ordinances. They find that cities that adopted legal change grew at least 0.1 percent faster per year than both Protestant cities that did not formalize social change in municipal law and Catholic cities.…”

“…Nunziata and Rocco Most of the above-cited papers, except for Dittmar and Meisenzahl (2016), focus on the long-run effects of the Reformation, seeking to understand differences that arose centuries after the Reformation. This is understandable, since data from the 19 th and 20 th centuries are much better and much more widely available than data from the 16 th century.…”

A replication of ‘Education and catch-up in the Industrial Revolution’ (American Economic Journal: Macroeconomics, 2011)

“…No study has been able to show that the positive association between education levels and per capita income in most European economies between 1550 and 1900 reflects a causal effect of education on growth rather than rising incomes enabling people to consume more education. This lack of evidence has led recent literature to focus on the contribution of the knowledge and skills of particular groups (Kelly et al 2014, Squicciarini and Voigtländer 2015, Dittmar and Meisenzahl 2016. One study does claim to provide evidence that education of the general population had an important causal influence on industrialisation in the nineteenth century.…”