Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174964
Authors: 
Becker, Sascha
Heblich, Stephan
Sturm, Daniel
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper 6841
Abstract: 
This paper evaluates the impact of public employment on private sector activity using the relocation of the German federal government from Berlin to Bonn in the wake of the Second World War as a source of exogenous variation. To guide our empirical analysis, we develop a simple economic geography model in which public sector employment in a city can crowd out private employment through higher wages and house prices, but also generates potential productivity and amenity spillovers. We find that relative to a control group of cities, Bonn experiences a substantial increase in public employment. However, this results in only modest increases in private sector employment with each additional public sector job destroying around 0.2 jobs in industries and creating just over one additional job in other parts of the private sector. We show how this finding can be explained by our model and provide several pieces of evidence for the mechanisms emphasized by the model.
Subjects: 
economic geography
public employment
place-based policies
German division
JEL: 
F15
J45
N44
R12
Document Type: 
Working Paper

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