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Preferences over Relative Income within the Household

Author

Listed:
  • Hermle, Johannes

    (UC Berkeley)

  • Herold, Elena

    (Ifo Institute for Economic Research)

  • Hildebrand, Nikolaus

    (MIT)

Abstract

What preferences do partners hold over their relative income within the household? We provide a flexible framework of preferences over relative income within the household that captures various motives, including inequality aversion and a preference for being the primary earner. We study the role of these preferences for marital selection, separation and household public good provision in a marriage market matching model with search frictions. We test the model predictions using large administrative tax data from Germany. We document the existence of a kink point in the relative income distribution at the point of spousal income equality, consistent with the presence of kinked preferences over relative income. We also find the presence of a convex kink in wives' household public good provision, suggesting that women bear the incidence of spousal relative income preferences. To disentangle the preferences of women and men, we implement a survey experiment. Our results indicate that women exhibit inequality aversion while men exhibit a preference for being the primary earner.

Suggested Citation

  • Hermle, Johannes & Herold, Elena & Hildebrand, Nikolaus, 2024. "Preferences over Relative Income within the Household," IZA Discussion Papers 16803, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp16803
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    More about this item

    Keywords

    relative income concerns; relative income distribution;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination

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