Journal of Economic Growth

, Volume 1, Issue 1, pp 75–93 | Cite as

A theory of persistent income inequality

  • Steven N. Durlauf


This paper explores the dynamics of income inequality by studying the evolution of human capital investment and neighborhood choice for a population of families. Parents affect the conditional probability distribution of their children's income through the choice of a neighborhood in which to live. Neighborhood location affects children both through local public finance of education as well as through sociological effects. These forces combine to create incentives for wealthier families to segregate themselves into economically homogeneous neighborhoods. Economic stratification combines with strong neighborhoodwide feedback effects to transmit economic status across generations, leading to persistent income inequality.


inequality neighborhoods spillovers 

JEL Classification

J24 J62 O15 O40 


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Copyright information

© Kluwer Academic Publishers 1996

Authors and Affiliations

  • Steven N. Durlauf
    • 1
    • 2
  1. 1.Department of EconomicsUniversity of WisconsinMadisonUSA
  2. 2.National Bureau of Economic ResearchUSA

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