Income Pooling between Australian Young Adults and Their Parents

Abstract

We test whether young adults who co-reside with their parents derive influence over household-level expenditure by earning income. We propose a new variant of the Engel curve consistent with the Quadratic Almost Ideal Demand System, which allows a simple test of income pooling. Our tests suggest that young adults and parents mostly pool their income -pooling is not rejected for 8 out of 12 expenditure categories. We are more likely to reject income pooling between young adults and their parents in those expenditure categories where the model fit is highest, so our results may be interpreted as an upper bound on income pooling. We also apply our tests to income pooling between husbands and wives and find that pooling holds for 9 out of 12 expenditure categories. We find the opposite relationship with fit -expenditure categories where fit is poor are those where we are most likely to reject income pooling.

Labour Supply and Childcare: Allowing Both Parents to Choose

“…Evidence from other countries is more mixed, for example, those finding against income pooling include Duflo (2003) in South Africa, Attanasio and Lechene (2010) in Brazil, and Duflo and Udry (2004) for the Cote d'Ivoire. Those finding for income pooling include Braido et al (2012) in Brazil, Thomas et al (1999) in areas of Indonesia, and, importantly for our study, Bradbury (2004) and Breunig and McKibbin (2012) in Australia. The latter paper captures much of the inherent concerns with papers testing for income pooling when it concludes "one could speculate that with a better-fitting model we might find income pooling holds for all categories of husbands and wives" (Breunig and McKibbin, 2012;page 254).…”

“…Those finding for income pooling include Braido et al (2012) in Brazil, Thomas et al (1999) in areas of Indonesia, and, importantly for our study, Bradbury (2004) and Breunig and McKibbin (2012) in Australia. The latter paper captures much of the inherent concerns with papers testing for income pooling when it concludes "one could speculate that with a better-fitting model we might find income pooling holds for all categories of husbands and wives" (Breunig and McKibbin, 2012;page 254). General consensus appears to be that income pooling is more likely to characterize households in developed countries with greater gender equality (Bargain et al, 2014;Doepke and Tertilt, 2014), where a broad range of consumption expenditures (especially public goods) are considered and where the focus is not predominately on low income families.…”

Labour Supply and Childcare: Allowing Both Parents to Choose

“…Those finding for income pooling include Braido et al (2012) in Brazil, Thomas et al (1999) in areas of Indonesia, and, importantly for our study, Bradbury (2004) and Breunig and McKibbin (2012) in Australia. The latter paper captures much of the inherent concerns with papers testing for income pooling when it concludes "one could speculate that with a better-fitting model we might find income pooling holds for all categories of husbands and wives" (Breunig and McKibbin, 2012;page 254). General consensus appears to be that income pooling is more likely to characterize households in developed countries with greater gender equality (Bargain et al, 2014;Doepke and Tertilt, 2014), where a broad range of consumption expenditures (especially public goods) are considered and where the focus is not predominately on low income families.…”