Explaining income inequality by the relationship between social network fragmentation and social segregation indicators

This paper investigates the way social networks and social indicators of segregation interact and their relationship with income disparity for 426 towns and cities in Hungary. Three social indicators of segregation are used to capture different characteristics of social segregation in towns: (i) ethnic fragmentation, (ii) religious fragmentation, and (iii) education inequality. Using open-access data from Tóth et al. (2021), non-spatial and spatial two-stage least square models are estimated for income inequality at the town level. The study finds that these social segregation indicators positively correlate with income inequality through social network fragmentation. Also, the spatial model shows that income inequality has a strong spatial relationship across towns.

Keywords: Inequality; social network; fragmentation; social segregation; spatial two-stage model

JEL classifications: J31, D31, C36