Existing studies of social capital formation in US metropolitan areas have
found that social capital is lower when there is more income inequality and greater racial
fragmentation. I add to this literature by examining the role of income inequality between
racial groups (racial income inequality). I find that greater racial income inequality reduces
social capital. Also, racial fragmentation is no longer a significant determinant of social
capital once racial income inequality is accounted for. This result is consistent with a simple
conceptual framework where concurrent differences in race and income are especially detrimental
for social capital formation. I find empirical support for further implications deriving
from this assumption. In particular, I show that racial income inequality has a more detrimental
effect in more racially fragmented communities and that trust falls more in minority
groups than in the majority group when racial income inequality increases.