Long-Run Agglomeration: Evidence from County Seat Wars

Urban areas are shaped by their size, perhaps particularly so over the long run. We study how historical shocks to the size of towns in the American West affected long-run economic outcomes, using elections which determined county seats (capitals) in the 1800s and a regression discontinuity (RD) design. High rates of mobility in the frontier period meant that these elections quintupled population density in winning locations, ultimately determining where 15% of a county resides today. Although the county seat provides relatively few government jobs, we show that the increased town size reshaped their modern local economies in several important ways. First, reported IRS income increases with an elasticity of 0.15 with respect to density. Second, these gains are distributed primarily to the upper end of the income distribution, leading to a 2.9pp increase in the top 5% income share. Finally, spillover effects onto nearby communities are minimal, cutting against notions of positive amenity provision and negative agglomeration shadows.

Joint with WBS

Title: Efficient Industrial Policy for Innovation: Standing on the shoulders of hidden grants