Behind the Curtain: The Within-Household Sharing of Income

Abstract

The distribution of personal income in a society depends strongly on the within-household distribution of income. Nevertheless, little is known about this phenomenon. I analyze the sharing of income among household partners from a welfare economic perspective. Measures of financial satisfaction for both household partners are used to gain information about the within-household distribution of income-induced well-being. A model of satisfaction differences between household partners is developed and estimated using 10 waves (1999 to 2008) of the German Socio-Economic Panel Study. Differences in financial satisfaction within couples are generally small. However, satisfaction is not a direct measure of welfare. For this reason, covariates are included to control for the partners’ different characteristics, influencing the expression of satisfaction. Using panel data allows us to account for unobserved heterogeneity at the household level, which is one major advancement of this analysis. The results show that the partners’ relative earned income has a substantial effect on the distribution of income-induced well-being, whereas the relative amount of transfer income does not.