Building Capacity in the Public Administration: Evidence from German Reunification

An effective public administration is essential for state capacity and economic prosperity. We provide the first causal evidence on the short and long-term impact of secondments, a key instrument for building administrative capacity. Our context is the large-scale capacity building in the East German tax administration after reunification, which was designed and implemented in a highly decentralized way. We exploit this unique institutional feature for identification, drawing on a major, novel data collection. Secondments significantly increased short-term output quantity with returns on investment of 1.5–3.1 and had persistent positive effects on long-term output quality. Effect heterogeneity suggests successful transfer of tacit knowledge as the main mechanism behind successful capacity building. Exploiting the richness of our data, we uncover three key design features of effective capacity building: support from offices with strong administrative traditions, intermediate secondment durations, and both task-specific and broad measures.