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

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. Cities that adopted institutional change subsequently began to differentially produce and attract human capital and grow faster. Institutional change occurred where ideological competition introduced by the Protestant Reformation interacted with local politics. We study plagues that shifted local politics in a narrow period as sources of exogenous variation in institutions, and find support for a causal interpretation of the relationship between institutional change, human capital, and growth.