Many localities in the United States are, or have been at some point in their past, economically dependent on a single industry. This leaves local governments vulnerable to capture by dominant firms. In such places, business interests may shape not only policy outcomes, but the size, structure, and capacity of government itself. Focusing on the case of eastern coal country in the twentieth century United States, this paper presents evidence that the coal industry hindered the growth of local government capacity where it was dominant. A difference-in-differences design and instrumental variables analysis show that coal-dependent counties employed fewer public workers, collected less tax revenue, and spent less on government services than comparable areas, with the latter two effects persisting long after the industry’s decline. These findings illustrate that local political economy in the early phases of institutional development can shape the trajectories of governance in lasting ways.
