State Capacity and Public Goods: Institutional Change, Human Capital, and Growth in Early Modern Germany∗ Jeremiah E. Dittmar Ralf R. Meisenzahl London School of Economics Federal Reserve Board Abstract What are the origins and consequences of the state as a provider of public goods? We study institutional changes that increased state capacity and public goods provision in German cities during the 1500s, including the establishment of mass public education. We document that cities that institutionalized public goods provision in the 1500s subsequently began to differentially produce and attract upper tail human capital and grew to be significantly larger in the long-run. Institutional change occurred where ideological competition introduced by the Protestant Reformation interacted with local politics. We study plague outbreaks that shifted local politics in a narrow time period as a source of exogenous variation in institutions, and find support for a causal interpretation of the relationship between institutional change, human capital, and growth. JEL Codes: I25, N13, O11, O43 Keywords: State Capacity, Institutions, Political Economy, Public Goods, Education, Human Capital, Growth. ∗Dittmar: LSE, Centre for Economic Performance, Houghton Street, London WC2A 2AE. Email:
[email protected]. Meisenzahl: Federal Reserve Board, 20th and C Streets NW, Washington, DC 20551. E-mail:
[email protected]. We would like to thank Sascha Becker, Davide Cantoni, Joel Mokyr, Andrei Shleifer, Yannay Spitzer, Joachim Voth, Noam Yuchtman, and colleagues at Bonn, Brown, NYU, Warwick, LSE, the University of Munich, UC Berkeley, Northwestern University, University of Mannheim, Hebrew University, Vanderbilt University, Reading University, George Mason University, the Federal Reserve Board, the NBER Culture and Institutions Conference, NBER Summer Institute, 2015 EEA conference, 2015 SGE conference, 2015 German Economists Abroad meeting, and 2015 ARSEC conference for helpful comments.