Non-technical summary:
This paper considers how the allocation of resources within households are associated with the reports of experiencing financial hardships among Australian co-resident couples. Unequal resource distribution may stem from differences in bargaining power between partners. An individual with less bargaining power may be disadvantaged in terms of the resources they receive and hence may be more likely to experience financial hardship relative to their more ‘powerful’ partner. We develop and estimate a collective household model that accounts for each partner’s necessary expenditures and reported experiences of financial hardship. In this model, each partner has a distinct utility function and household decisions are assumed to be ‘Pareto efficient’ (i.e. no partner can be made better off without making the other partner worse off). Data emanate from the 16th wave of the Household, Income, and Labour Dynamics in Australia (HILDA) Survey that contains unique questions on individual financial hardships (such as missing a meal or having to pawn something, all because of a lack of money). The paper explores disadvantage brought about by financial hardships that may be shaped in part by the distributions of individual preferences and bargaining power within the household. We find that wives generally report more hardships than husbands. Estimates suggest that wives tend to have weaker preferences than husbands for expenditures on necessary goods for themselves, but there is no evidence of differences in bargaining power. As such, one explanation for why wives experience more hardships than husbands can be due to their weaker preferences for necessary expenditures. Hardships increase with the number of children and each spouse’s disability status. Hardships decrease with each spouse’s age and subjective financial capabilities.
An updated version of this paper has been published as Botha F and Ribar DC. (2023) For worse? Financial hardships and intra-household resource allocation among Australian couples. Economic Modelling, 119. DOI: 10.1016/j.econmod.2022.106114