October 2018
David Szakonyi
Abstract: Many papers have found a positive relation between income inequality and city size in the US and other countries. This literature has assumed that the relation is linear. Tests performed here find that it is concave, resembling the classic Kuznets curve. A theoretical model based on the Income Elasticity Hypothesis (IEH), explains that inequality is a concave function of housing prices that tend to increase with city size. Further tests confirm the concavity of the relation between Gini and housing costs that is predicted by the IEH. Although for most cities, inequality still rises with housing costs, if housing costs continue to grow in large cities, inequality should eventually fall, resembling the Kuznets Curve at the country level
