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Income Inequality, School Choice and the Endogenous Gentrification of US Cities

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  • Paololo Melindi Ghidi

    ()
    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

Why in some urban areas do rich and poor households cohabit at the community level while, in others, we observe a sorting by income? To answer this question I develop a two-community general equilibrium framework of school quality, residential choice and tax decision. The model predicts that in highly unequal societies low and high income households choose to live in the same community but segregate by schooling. When inequality is smaller, we observe the typical sorting by income across communities. The effect of inequality on the quality of public schools depends on the relative size of the housing market of each community. When inequality increases, if the housing conditions of the community in which rich and poor households cohabit are affordable, then an inflow of high income middle class households towards this community emerges (gentrification). As a consequence, inequality impacts negatively the quality of the public school because both rich and poor households vote for lower taxation.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2012006.

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Length: 43
Date of creation: 17 Apr 2012
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Handle: RePEc:ctl:louvir:2012006

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Keywords: Gentrification; Housing; Inequality; Segregation; Stratification;

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  1. Davide Dottori & I-Ling Shen, 2009. "Low skilled immigration and the expansion of private schools," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 726, Bank of Italy, Economic Research and International Relations Area.
  2. Nico A. Hansen & Anke S. Kessler, 2001. "The Political Geography of Tax H(e)avens and Tax Hells," American Economic Review, American Economic Association, American Economic Association, vol. 91(4), pages 1103-1115, September.
  3. Martinez-Mora, Francisco, 2006. "The existence of non-elite private schools," Journal of Public Economics, Elsevier, Elsevier, vol. 90(8-9), pages 1505-1518, September.
  4. Rappaport, Jordan & Kahn, Matthew E. & Glaeser, Edward, 2008. "Why Do The Poor Live In Cities? The Role of Public Transportation," Scholarly Articles 2958224, Harvard University Department of Economics.
  5. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, American Economic Association, vol. 88(1), pages 33-62, March.
  6. Nechyba, Thomas J, 1999. " School Finance Induced Migration and Stratification Patterns: The Impact of Private School Vouchers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(1), pages 5-50.
  7. Sean Corcoran & William N. Evans, 2010. "Income Inequality, the Median Voter, and the Support for Public Education," NBER Working Papers 16097, National Bureau of Economic Research, Inc.
  8. Calin Arcalean & Ioana Schiopu, 2010. "Inequality and Education Funding: Theory and Evidence from the U.S. School Districts," Caepr Working Papers, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington 2010-009, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  9. Epple, Dennis & Romano, Richard E., 1996. "Ends against the middle: Determining public service provision when there are private alternatives," Journal of Public Economics, Elsevier, Elsevier, vol. 62(3), pages 297-325, November.
  10. Gerhard Glomm & B. Ravikumar, 1998. "Opting out of publicly provided services: A majority voting result," Social Choice and Welfare, Springer, Springer, vol. 15(2), pages 187-199.
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