Mortgage Credit and Racial Segregation

Abstract: This paper shows that the mortgage credit boom has significantly affected urban and school racial segregation from 1995 to 2007. We develop a model of urban segregation with credit constraints that shows that easier credit can either increase or decrease segregation, depending on the race of the marginal consumer who benefits from the expansion of credit. We then use school demographics from 1995 to 2007, matched to a national comprehensive dataset of mortgage originations, to document the link between credit supply and schools' racial demographics.

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