Inequality, educational choice, and public school quality in income-mixing communities

Why, in some urban communities, do rich and poor households cohabit while, in others, we observe sorting by income? Does income inequality impact residential choices and community segregation? To answer these questions, I develop a two-community general equilibrium framework of school quality, residential choice, and tax decision with probabilistic voting. The model predicts that an equilibrium with income mixing in which households segregate across public schools and low- and high-income households choose to live in the same community might emerge in highly unequal societies. In this particular equilibrium, income-mixing communities perform lower public school quality than communities populated by middle-income households. The effect of inequality on the quality of public schooling in the income-mixing community is ambiguous and depends on the relative endowments of private goods, such as housing, in the two communities.