Income Growth and the Distributional Effects of Urban Spatial Sorting

51 Pages Posted: 12 Aug 2019 Last revised: 30 Aug 2021

See all articles by Victor Couture

Victor Couture

University of California, Berkeley

Cecile Gaubert

University of California, Berkeley - Department of Economics

Jessie Handbury

University of Pennsylvania, The Wharton School

Erik Hurst

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

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Date Written: August 2019

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 neighborhoods with endogenous amenity quality. As the rich get richer, demand increases for the high quality amenities available in downtown neighborhoods. Rising demand drives up house prices and spurs the development of higher quality neighborhoods 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 neighborhood 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

Couture, Victor and Gaubert, Cecile and Handbury, Jessie and Hurst, Erik, Income Growth and the Distributional Effects of Urban Spatial Sorting (August 2019). NBER Working Paper No. w26142, Available at SSRN: https://ssrn.com/abstract=3435961

Victor Couture (Contact Author)

University of California, Berkeley ( email )

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Cecile Gaubert

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
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Jessie Handbury

University of Pennsylvania, The Wharton School ( email )

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Erik Hurst

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
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National Bureau of Economic Research (NBER)

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