Public Good Provision and Local Employment – Evidence from Grammar School Closures in East Germany

Abstract This paper assesses the impact of public good provision on the spatial distribution of employment as predicted by a local labor market model that allows for commuting. Using local grammar school closures in East Germany after 2000 in a difference-in-differences estimation framework coupled with an entropy balancing strategy, we find that the school closures triggered a decline in the number of (employed) residents by 11%. The number of local employees, in contrast, decreases by just 5% as in-commuters do not respond to the school closures. Moreover, we find – as predicted – that the school closures reduce house prices and that the share of land used for housing declines, albeit only to a small extent.