The Cost of State-Building: Evidence from Germany

I examine the potential of pro-development state (capacity) building projects to be coopted for repression. I leverage the natural experiment created by the differential build-up of capacity between formerly Prussian and formerly non-Prussian parts of unified Germany, and the radical policy shifts instigated by the Nazi regime. Across a geographical discontinuity, and across different stops of the same train transport to the East, I find that Prussian municipalities were significantly more efficient at deporting Germany's Jews. They were also better at providing public goods and at collecting taxes. Just before the Nazis came to power, Prussian municipalities also provided public goods more efficiently, but were not differentially involved with anti-Semitism. I show that democratic oversight and aspects of bureaucratic culture can mitigate the potential for future abuse of state building projects.