Intra-Household Resource Allocation, Consumer Preferences and Commodity Tax Reforms: Australian Evidence (original) (raw)
Empirical analysis of household expenditure behaviour has traditionally ignored the issue of resource allocation between household members, assuming that they have identical or unitary preferences. This paper relaxes that assumption, develops a household sharing rule and proposes intra-household demand systems that are able to identify differences in the preferences of members from conventional data. The resulting price and expenditure elasticities are used to demonstrate that collective demand models suggest different directions for commodity tax reforms to those implied by the traditional unitary model. and the 'sharing rule' approach, based on a Pareto efficient sharing rule between household members. 4 Crucial to the non-unitary models is the relative 'power' of individual members in the household. 5 Notwithstanding significant methodological advances, empirical evidence on non-unitary or collective choice models in the consumer demand literature is virtually nonexistent. There are two principal reasons: (a) absence of the required disaggregated information on the earnings and expenditure of the household members, and (b) lack of an intra-household demand system that is explicitly based on a resource allocation mechanism and takes account of the varying preferences inside the household. As Basu (2001) has recently pointed out, a distinctive, perhaps limiting, characteristic of the literature on nonunitary models is that the welfare weights assigned to the household members are fixed and exogenous to household decisions.
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