Neutrality Theorem Revisited: An Empirical Examination of Household Public Goods Provision

Households have many economic roles in society. One of such roles is to share household-level public goods that are jointly consumed by members of the household. Several theoretical models have been proposed in the literature: the unitary model, the non-cooperative game theoretical model and the bargaining model. Using both the information on Japanese Tax reforms conducted in the 1990s as natural experiments and Japanese panel data that has information on household expenditures in detail, we examine the relevance of the unitary model and the non-cooperative game theoretical model. We find that the neutrality result regarding income redistribution does not hold, which shows the failure of the unitary model. We also find evidences that the non-cooperative game model does not hold either.