Working Paper: CEPR ID: DP14350
Authors: Victor Couture; Cecile Gaubert; Jessie Handbury; Erik Hurst
Abstract: We explore the impact of rising incomes at the top of the distribution on spatial sortingpatterns within large U.S. cities. We develop and quantify a spatial model of a city with heterogeneousagents and non-homothetic preferences for neighborhoods with endogenous amenityquality. As the rich get richer, demand increases for the high quality amenities available indowntown neighborhoods. Rising demand drives up house prices and spurs the development ofhigher quality neighborhoods downtown. This gentrification of downtowns makes poor incumbentsworse off, as they are either displaced to the suburbs or pay higher rents for amenitiesthat 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 1990and 2014 led to neighborhood change and spatial resorting within urban areas that increasedthe welfare of richer households relative to that of poorer households, above and beyond risingnominal income inequality.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Rising house prices and gentrification (R31) | Poor incumbents worse off (P19) |
| Rising top incomes (D31) | Changes in income distribution leading to neighborhood change (R23) |
| Changes in income distribution leading to neighborhood change (R23) | Increased welfare of richer households relative to poorer households (D69) |
| Influx of higher-income residents into downtown neighborhoods (R23) | Change in amenity mix (R33) |
| Increase in income inequality between 1990 and 2014 (D31) | 17 percentage point increase in well-being inequality between top and bottom deciles (I31) |
| Top income growth (O49) | Reduction in welfare of low-income renters (H53) |
| Anti-gentrification policies (R28) | Maintain a diverse income mix downtown (R33) |
| Anti-gentrification policies (R28) | Do not reverse increase in well-being inequality caused by top income growth (D31) |
| Rising top incomes (D31) | Increased demand for high-quality amenities in downtown neighborhoods (R21) |
| Increased demand for high-quality amenities in downtown neighborhoods (R21) | Rising house prices and gentrification (R31) |