Neighbourhood-level variation in the risk of private credit default: A driver of urban residential segregation?

Uwe Neumann and Sandra Schaffner

No 875, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: Credit default is a dramatic consequence of disadvantageous private financial decisions. Using regression methods which eliminate spatial autocorrelation at the level of 1 km2 grids and further identification problems, we observe considerable and reinforcing residential segregation between households facing payment difficulty and more solvent households. Two findings give reasons for concern. First, data from North Rhine-Westphalia reveals that a high local risk of credit default coincides with a lower share of children taking the highest German secondary school track (Gymnasium). Since birth rates are currently high in these (inner city) areas, the outlook on educational attainment for many pupils is bleak. Second, hedonic price estimations using microdata on housing offers find that local agglomeration of households facing credit default provokes significant (detrimental) neighbourhood effects on housing markets. Segregation is thus unlikely to diminish, which implies increased efforts should be made to overcome unfavourable neighbourhood effects in various fields of policy, especially education.

Keywords: segregation; credit default; financial literacy; spatial autocorrelation; hedonic price analysis (search for similar items in EconPapers)
JEL-codes: G51 R21 R23 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-eur, nep-fle and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:875

DOI: 10.4419/96973013

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