Economic redistribution does not solve residential segregation

Income-related residential segregation in Sweden has increased the past few decades. However, this increase is not the result of a reduced redistribution in the form of taxes and transfers. This is shown by economist Che-Yuan Liang in the SNS report “Income Inequality and Residential Segregation.” Liang finds that individuals with a low pre-tax income to a greater extent tend to reside in certain residential areas.

Even though the level of income inequality in Sweden is low from an international perspective, it has nevertheless increased over the past few decades. Income inequality between different residential areas within the same municipality (i.e., income-related residential segregation) has also increased.

In the report, Che-Yuan Liang describes the relationship between increasing income inequality and where people reside. Liang shows that this increasing residential segregation is a result of changes in people’s income before tax. A key factor here is that the proportion of low-income earners has increased and that these individuals tend to reside in certain residential areas. Che-Yuan Liang emphasizes that someone’s level of income is linked to his or her level of education, while also highlighting another clear pattern where people tend to settle in areas where the neighbors have a level of education similar to their own.

An important result from a policy perspective is that increased differences in terms of income after tax and transfers do not seem to drive this increasing residential segregation. What does drive these relationships, however, is income before tax and transfers. According to the study, there is thus no support for the notion that an increased redistribution through taxes and transfers would be decisive when it comes to reducing residential segregation.

“One way of reducing this income-related residential segregation is to increase the earning capacity of people with weak ties to the labor market. For instance, different types of educational initiatives may be relevant in this regard,” says Che-Yuan Liang, associate professor of economics at Uppsala University.

About the report

Che-Yuan Liang uses data from the GeoSweden database over the period 1991–2014. This database is unique in that individuals are geographically linked to the house or apartment in which they are registered. Liang also adds socio-economic variables from other registers by using personal identity numbers.

The material covers the entire Swedish population and contains income variables collected, processed and used by the Swedish Tax Agency, including information on various transfers.

Download the report SNS Research Brief 71. Income inequality and residential segregation. English summary.