The Effect of Credit Standards on Urban and School Segregation

71 Pages Posted: 28 Mar 2011

See all articles by Amine Ouazad

Amine Ouazad

HEC Montréal

Romain G. Rancière

University of Southern California

Multiple version iconThere are 2 versions of this paper

Date Written: March 2011

Abstract

This paper shows that the mortgage credit boom has significantly affected urban and school racial segregation from 1995 to 2007. We develop a model of urban segregation with credit constraints that shows that easier credit can either increase or decrease segregation, depending on the race of the marginal consumer who benefits from the expansion of credit. We then use the annual racial demographics of each of the approximately 90,000 public schools in the United States from 1995 to 2007, matched to a national comprehensive dataset of mortgage originations, linked to the neighborhood of the house, to show that higher leverage increases the segregation of African American and Hispanic students. Both segregation across schools and across school districts are higher when the leverage is higher. Higher leverage allows households to avoid interracial contact.

Keywords: lending standards, mortgage, segregation

JEL Classification: H0, J15, R2, R3

Suggested Citation

Ouazad, Amine and Rancière, Romain G., The Effect of Credit Standards on Urban and School Segregation (March 2011). CEPR Discussion Paper No. DP8300. Available at SSRN: https://ssrn.com/abstract=1794890

Amine Ouazad (Contact Author)

HEC Montréal ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada

Romain G. Rancière

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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