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Do Parents Tax Their Children? Teenage Labour Supply and Financial Support

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  • Holford, Angus J.

    () (University of Essex)

Abstract

This paper models child employment and parental pocket money decisions as a non-cooperative game. Assuming that the child human capital is a household public good and that the relationship between child human capital and employment is concave, we compare the welfare obtained under different decision-making mechanisms and test the predictions of the model for a cohort of English teenagers in compulsory education. Our results support a situation in which parents 'tax' their children's earnings, withdrawing financial support as the child increases his working hours. This strategy forces the child to internalise the social cost of his activities.

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  • Holford, Angus J., 2016. "Do Parents Tax Their Children? Teenage Labour Supply and Financial Support," IZA Discussion Papers 10040, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp10040
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    Keywords

    intra-household transfers; pocket money; child labour supply; noncooperative game; human capital;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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