Building Capacity in the Public Administration: Evidence from German Reunification

Abstract: An effective public administration is crucial for the functioning of the state. Administrative capacity varies widely, both across and within countries. We study one of the main means to build capacity: seconding officials from high-capacity to low-capacity public administrations. Our context is the capacity-building in the East German fiscal administration after reunification. A unique feature of our setting is that each East German tax office was assigned to a partner tax office in West Germany that was responsible for the capacity-building measures. We exploit that this institutional setting generates variation in the capacity-building measures that is exogenous to the situation and needs of the East German tax office. For the first-time, we can thus estimate the causal effect of secondments on tax office performance. We measure tax office performance along two dimensions: productivity and quality of output. Our findings show that secondments increased productivity and had  persistent positive effects on output quality.

(joint work with Anna Gumpert)