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Income Growth and the Distributional Effects of Urban Spatial Sorting

Author

Listed:
  • Victor Couture
  • Cecile Gaubert
  • Jessie Handbury
  • Erik Hurst

Abstract

We explore the impact of rising incomes at the top of the distribution on spatial sorting patterns within large U.S. cities. We develop and quantify a spatial model of a city with heterogeneous agents and non-homothetic preferences for neighbourhoods with endogenous amenity quality. As the rich get richer, demand increases for the high-quality amenities available in downtown neighbourhoods. Rising demand drives up house prices and spurs the development of higher quality neighbourhoods downtown. This gentrification of downtowns makes poor incumbents worse off, as they are either displaced to the suburbs or pay higher rents for amenities that they do not value as much. We quantify the corresponding impact on well-being inequality. Through the lens of the quantified model, the change in the income distribution between 1990 and 2014 led to neighbourhood change and spatial resorting within urban areas that increased the welfare of richer households relative to that of poorer households, above and beyond rising nominal income inequality.

Suggested Citation

  • Victor Couture & Cecile Gaubert & Jessie Handbury & Erik Hurst, 2024. "Income Growth and the Distributional Effects of Urban Spatial Sorting," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(2), pages 858-898.
    • Handle: RePEc:oup:restud:v:91:y:2024:i:2:p:858-898.
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    File URL: http://hdl.handle.net/10.1093/restud/rdad048
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    Citations

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    Cited by:

    1. Sumit Agarwal & Shashwat Alok & Sergio Correia & Deepa Mani & Bernardo Morais, 2024. "Transportation Technology and Gentrification: Evidence from the entry of Ridesharing Services," Papers 2409.15462, arXiv.org.
    2. Hanson, Gordon H. & Moretti, Enrico, 2025. "Where Have All the Good Jobs Gone? Changes in the Geography of Work in the U.S., 1980-2021," SocArXiv z6qkn_v1, Center for Open Science.
    3. C. Grislain-Letremy & J. Sixou & A. Sotura, 2024. "Urban Heat Islands and Inequalities: Evidence from French Cities," Documents de Travail de l'Insee - INSEE Working Papers 2024-21, Institut National de la Statistique et des Etudes Economiques.
    4. Agrawal, David R. & Brueckner, Jan K., 2025. "Taxes and telework: The impacts of state income taxes in a work-from-home economy," Journal of Urban Economics, Elsevier, vol. 145(C).
    5. David Albouy & Jason Faberman, 2018. "Skills, Migration, and Urban Amenities over the Life Cycle," 2018 Meeting Papers 1051, Society for Economic Dynamics.
    6. Stephen J. Redding, 2024. "Spatial Economics," NBER Working Papers 33125, National Bureau of Economic Research, Inc.
    7. Marius Brülhart & Jayson Danton & Raphaël Parchet & Jörg Schläpfer, 2025. "Who Bears the Burden of Local Taxes?," American Economic Journal: Economic Policy, American Economic Association, vol. 17(1), pages 464-505, February.
    8. Charles Labrousse & Yann Perdereau, 2024. "Geography versus income: the heterogeneous effects of carbon taxation," PSE Working Papers halshs-04464900, HAL.
    9. Céline Grislain-Letrémy & Julie Sixou & Aurélie Sotura, 2024. "Urban Heat Islands and Inequalities: Evidence from French Cities," Working papers 966, Banque de France.

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