A Centralized Approach to Modelling Collective Household Decisions: Some Preliminary Results

24 Pages Posted: 14 Feb 2015

See all articles by Rolf Aaberge

Rolf Aaberge

Statistics Norway; Institute for the Study of Labor (IZA); Deaprtment of Economics

Ugo Colombino

University of Turin - Department of Economics

Federico Perali

University of Verona - Department of Economics

Abstract

Empirical models of labour supply adopting the collective approach have commonly used the decentralized representation and a reduced form specification of the sharing rule. This procedure has two crucial drawbacks that in principle make it inappropriate for the very same type of applications that are thought to be mostly relevant for this family of models, i.e. tax reform simulations. The first problem concerns the decentralized representation. The possibility of decentralizing the maximization of household welfare rests on the convexity of the budget sets. However, both the actual tax systems and the tax reforms might imply significant non-convexities: this makes the decentralized representation in general inappropriate both for estimation and for simulation. The second problem concerns the specification of the sharing rule, which typically is not a structural one, but rather a reduced form, e.g. a combination of exogenous variables (wage rates, unearned incomes etc.). Such a specification might provide a reasonable approximation to the current intra-household allocation choices under the current tax rule, but in general it cannot be used for simulating the effects of a different tax rule. Analogously, the sharing rule in general will be different depending on whether both partners work or not. We propose – and illustrate with some preliminary results – a model that permits the estimation of a structural sharing rule.

Keywords: labour supply, tax reform evaluation, collective approach, decentralized representation, centralized representation, sharing rule, non-convex opportunity sets

JEL Classification: C35, D12, D13, H31, J22

Suggested Citation

Aaberge, Rolf and Colombino, Ugo and Perali, Federico, A Centralized Approach to Modelling Collective Household Decisions: Some Preliminary Results. IZA Discussion Paper No. 8833, Available at SSRN: https://ssrn.com/abstract=2564966

Rolf Aaberge (Contact Author)

Statistics Norway ( email )

N-0033 Oslo
Norway

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Deaprtment of Economics ( email )

Norway

Ugo Colombino

University of Turin - Department of Economics ( email )

Via Po, 53
Torino, 10124
Italy

Federico Perali

University of Verona - Department of Economics ( email )

via dell'Artigliere, 19
I-37129 Verona
Italy

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