Neighborhood Income Distributions

This paper studies purely empirically aspects of the distribution of income within small neighborhoods and contrasts it with the income distribution at higher level of aggregation, such as census tracts and metropolitan areas. It relies on a unique feature of the American Housing Survey, whose 1985, 1989 and 1993 waves provide data for small residential neighborhoods. These consist of a dwelling unit and up to ten of its nearest neighbors. The paper employs several parametric and nonparametric econometric tools to measure income sorting in US residential neighborhoods. It documents the patterns of dependence among neighbors’ income and imperfect sorting, with moderate but very significant correlation among incomes of neighbors and of considerable income mixing in U.S. neighborhoods. These results persist even if choice-based sampling and heterogeneity across the sample are accounted for. Neighborhoods associated with a randomly selected renter are more sorted than those associated with an owner even though such owners are more likely to define their neighborhoods.