Tiebout sorting and neighborhood stratification

Tiebout's classic 1956 paper has strong implications regarding stratification across and within jurisdictions, predicting in the simplest instance a hierarchy of internally homogeneous communities ordered by income. Typically, urban areas are less than fully stratified, and the question arises, how much do departures from standard Tiebout assumptions contribute to observed within-neighborhood mixing? This paper quantifies the separate effects of employment geography (via costly commuting) and preferences for housing attributes on neighborhood stratification. It does so using an equilibrium sorting model, estimated with rich Census micro-data. Simulations based on the model and credible preference estimates show that counterfactual reductions in commuting costs lead to marked increases in racial and education segregation and, to a lesser degree, increases in income segregation, given that households now find it easier to locate in neighborhoods with like households. While turning off preferences for housing characteristics increases racial segregation, especially for blacks, doing so reduces income segregation, indicating that heterogeneity in the housing stock serves to stratify households based on ability-to-pay. Further, we show that differences in housing help to accentuate differences in the consumption of local amenities.