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Prof. Nathenial Baum-Snow
Professor of Economic Analysis and Policy
Rotman School of Management
University of Toronto

Using 2001-2018 administrative tax records for all residents of the Toronto metropolitan region, this paper estimates the magnitudes and profiles of externalities that operate between neighbors in their residential locations. Using a high dimensional fixed effects framework, estimates relate fixed components of average earnings or employment status to these same outcomes for residents within 25 meters. We find evidence of small average human capital spillovers such that a 1 standard deviation increase in average peer quality raises individual earnings by 1\% of a standard deviation, with little evidence of dynamic responses. Employment spillovers are larger, such that 10\% (or a 1 standard deviation) increase in the fraction of neighbors who are employed increases individuals’ employment probability by 0.35 percent (8.5\% of a standard deviation), spread over 3 years. Extensive margin spillover estimates are considerably larger for lower index quality individuals and lower average quality neighborhoods, while intensive margin spillovers are greater for more affluent individuals and neighborhoods.