Income Pooling between Australian Young Adults and Their Parents: An Improved Parametric Model and Informal Semi-Parametric Tests

Abstract

We test whether young adults who co-reside with their parents derive influence over household-level expenditure by earning income. We propose a new variant of the Engel curve consistent with the Quadratic Almost Ideal Demand System but which allows a simpler test of income pooling. Using semi-parametric techniques, we show that our functional form appears to fit the data better than the one that has usually been used in the literature. We reject income pooling between young adults and parents for four expenditure categories. We also apply our tests to income pooling between spouses and provide evidence that rejection of income pooling may be related to functional form mis-specification.