The End of the American Dream? Inequality and Segregation in US Cities

58 Pages Posted: 12 Aug 2019 Last revised: 15 Aug 2019

See all articles by Alessandra Fogli

Alessandra Fogli

Federal Reserve Bank of Minneapolis

Veronica Guerrieri

University of Chicago - Booth School of Business

Date Written: July 1, 2019

Abstract

Since the ’80s the US has experienced both an increase in income inequality and an increase in residential segregation by income. After documenting this fact, we develop a general equilibrium model where parents choose the neighborhood where to raise their children. Segregation and inequality amplify each other because of local spillovers that affect the education returns. We calibrate the model using 1980 US data and the estimates for neighborhood exposure effects in Chetty and Hendren (2018b). We then show that segregation contributes to 28% of the increase in inequality between 1980 and 2010 after an unexpected permanent skill premium shock.

Suggested Citation

Fogli, Alessandra and Guerrieri, Veronica, The End of the American Dream? Inequality and Segregation in US Cities (July 1, 2019). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-99. Available at SSRN: https://ssrn.com/abstract=3435823 or http://dx.doi.org/10.2139/ssrn.3435823

Alessandra Fogli

Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

Veronica Guerrieri (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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