Income Stratifcation in Multi-Community Models

This paper presents necessary conditions for stratification of the population in multi-community models with housing markets and heterogeneous households. The conditions for the sorting of the population according to income classes or other dimensions of heterogeneity are established without explicitly describing the household utility function and budget constraint. They therefore apply to a broad class of models, including models with income taxation and property taxation. The stratification conditions in the existing literature are surveyed using a common framework and a series of new and less specific models are proposed. The analysis suggests that in models with income taxation, stratification can often only be established under very specific assumptions on the household's preferences. Furthermore, stratification cannot be ensured with progressive or regressive tax schemes.