The contingent racial politics of municipal incorporation: fiscal diffusion and suburban segregation

Does American municipal incorporation produce racial inequality? Existing accounts emphasize either racial design or local fiscal control, but few account for variation over time. Using a 60-year panel (1962–2022) of 1,988 incorporations linked to county fiscal, demographic, and political data, this paper shows that incorporation’s racial character was contingent and temporary. Among unincorporated communities that could have incorporated, whiter ones were substantially more likely to do so during the 1990s, but not in the decades before or after. The mechanism is a fiscal externality: each incorporation withdraws tax base from its county, raising the incentive for remaining communities to follow, and because wealthier communities capture the largest benefit from exit and wealth correlated with whiteness in postwar suburbs, the process produced racially disparate outcomes when it ran through segregated suburban geography. Incorporating communities were 7.2 percentage points whiter than unincorporated communities observed in the same decade during the 1990s, with no such gap in the 1970s, 1980s, or 2010s; backlash mechanisms such as school desegregation orders, the Voting Rights Act, and racial threat fail to explain when racial selection emerged; and the pattern was self-limiting, with nearly a quarter of 2010s incorporations majority-minority. Racial disparities produced by American institutions need not arise from intentional exclusion or reactive resistance, and can emerge and dissolve through race-neutral processes operating on racially structured landscapes – which also means such disparities may persist unaddressed absent deliberate intervention.