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Working Paper

The Impact of Racial Segregation on College Attainment in Spatial Equilibrium


Abstract: We incorporate race into an overlapping-generations spatial-equilibrium model with neighborhood spillovers. Race matters in two ways: (i) the Black-White wage gap and (ii) homophily—the preferences of individuals over the racial composition of their neighborhood. We find that these two forces generate a Black-White college gap of 22 percentage points, explaining about 80% of the college gap in the data for the St. Louis metro area. Counterfactual exercises show that the wage gap and homophily explain 7 and 18 percentage points of the college gap, respectively. A policy of equalizing school funding across neighborhoods reduces the college gap by almost 10 percentage points and generates large welfare gains.

Keywords: racial disparities; neighborhood segregation; education; income inequality;

JEL Classification: J15; J24; O18;

https://doi.org/10.20955/wp.2022.036

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Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2022-10-12

Number: 2022-036

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