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Neighbourhood-level variation in the risk of private credit default: A driver of urban residential segregation?

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  • Neumann, Uwe
  • Schaffner, Sandra

Abstract

Credit default is a dramatic consequence of disadvantageous private financial decisions. Using regression methods which eliminate spatial autocorrelation at the level of 1 km2 grids and further identification problems, we observe considerable and reinforcing residential segregation between households facing payment difficulty and more solvent households. Two findings give reasons for concern. First, data from North Rhine-Westphalia reveals that a high local risk of credit default coincides with a lower share of children taking the highest German secondary school track (Gymnasium). Since birth rates are currently high in these (inner city) areas, the outlook on educational attainment for many pupils is bleak. Second, hedonic price estimations using microdata on housing offers find that local agglomeration of households facing credit default provokes significant (detrimental) neighbourhood effects on housing markets. Segregation is thus unlikely to diminish, which implies increased efforts should be made to overcome unfavourable neighbourhood effects in various fields of policy, especially education.

Suggested Citation

  • Neumann, Uwe & Schaffner, Sandra, 2020. "Neighbourhood-level variation in the risk of private credit default: A driver of urban residential segregation?," Ruhr Economic Papers 875, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:875
    DOI: 10.4419/96973013
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    More about this item

    Keywords

    segregation; credit default; financial literacy; spatial autocorrelation; hedonic price analysis;
    All these keywords.

    JEL classification:

    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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