Escape from the City? The Role of Race, Income, and Local Public Goods in Post-War Suburbanization

Cities are poorer than suburbs and this gap has grown over time. Comparing neighboring houses across city-suburban borders, I find that the marginal homeowner is willing to pay four percent more to live in a town whose median income is one standard deviation above the city’s. Much of this suburban premium reflects fiscal isolation from social problems (especially spending on police). Growing urban poverty can explain around 25 percent of urban population loss from 1940-2000. Furthermore, the demand for wealthy co-residents leads to a vicious cycle of suburbanization, with implications for the rapid decline -- and recent revival -- of cities.

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This paper was revised on May 6, 2008

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