Despite extensive studies on neighborhood change, the role of municipal-level factors in neighborhood economic change has been underexplored. This article reviews diverse social science literature and makes theoretical connections between city size and homogeneity of city population and municipal performance, which is accordingly associated with neighborhood economic health. Building on the insights from the literature, this study hypothesizes that neighborhoods stay economically healthier in smaller cities and more homogeneous cities. This study presents a multilevel analysis of neighborhood economic change in 35 U.S. metropolitan areas between 1990 and 2000 and finds empirical evidence to support the proposed hypothesis.