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Saving and Cohabitation: The Economic Consequences of Living with One's Parents in Italy and the Netherlands

In: NBER International Seminar on Macroeconomics 2004

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  • Rob Alessie
  • Agar Brugiavini
  • Guglielmo Weber

Abstract

The paper deals with the e.ects of cohabitation of grown children with their parents on household saving, using data from Italy and the Netherlands. It presents a two-period gametheoretical model where the child has to decide whether to move out of the parental home. This decision is affected by transaction costs, the child's preference for independence, and by the consumption loss induced by the move (consumption is a public good while the child lives in the parental home). We show that the child's income share affects the household saving decision, in contrast with predictions of the standard unitary model of household decision making. Empirical results from both countries are supportive of the key model predictions. We find strong positive effects of the child income share on the saving rate in Italy, where we calculate saving as the difference between disposable income and consumption but cannot distinguish children who will leave from those who will stay. We also find some significant effects of the child income share on household saving rate in the Netherlands, where saving is computed as the change over time in financial wealth. In the Dutch data we distinguish between children who stay and children who leave. The effect of the child's income share is significantly negative for those who stay, positive for those who leave.

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This chapter was published in:

  • Richard H. Clarida & Jeffrey Frankel & Francesco Giavazzi & Kenneth D. West, 2006. "NBER International Seminar on Macroeconomics 2004," NBER Books, National Bureau of Economic Research, Inc, number clar06-1.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 0083.

    Handle: RePEc:nbr:nberch:0083

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    1. Sascha O. Becker & Samuel Bentolila & Ana Fernandes & Andrea Ichino, 2004. "Job Insecurity and Children's Emancipation," CESifo Working Paper Series 1144, CESifo Group Munich.
    2. Alessie, Rob & Kapteyn, Arie, 2002. "Savings and pensions in the Netherlands," Serie Research Memoranda 0009, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    3. Maria Concetta Chiuri & Tullio Jappelli, 2000. "Financial Market Imperfections and Home Ownership: A Comparative Study," CSEF Working Papers 44, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Dec 2000.
    4. Erich Battistin & Raffale Miniaci & Guglielmo Weber, 2000. "What do we learn from recall consumption data?," IFS Working Papers W00/10, Institute for Fiscal Studies.
    5. Marco Manacorda & Enrico Moretti, 2006. "Why do Most Italian Youths Live with Their Parents? Intergenerational Transfers and Household Structure," Journal of the European Economic Association, MIT Press, vol. 4(4), pages 800-829, 06.
    6. Maurizio Mazzocco, 2004. "Saving, Risk Sharing, and Preferences for Risk," American Economic Review, American Economic Association, vol. 94(4), pages 1169-1182, September.
    7. Alessie, Rob & Lusardi, Annamaria & Aldershof, Trea, 1997. "Income and Wealth over the Life Cycle: Evidence from Panel Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(1), pages 1-32, March.
    8. Orazio P. Attanasio, 1993. "A Cohort Analysis of Saving Behavior by U.S. Households," NBER Working Papers 4454, National Bureau of Economic Research, Inc.
    9. Martin Browning, 1994. "The Saving Behaviour of a Two Person Household," Discussion Papers 96-09, University of Copenhagen. Department of Economics, revised Jan 1996.
    10. Luigi Guiso & Tullio Jappelli, 1999. "Private Transfers, Borrowing Constraints and the Timing of Homeownership," CSEF Working Papers 17, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    11. Francesco C. Billari & Dimiter Philipov & Pau Baizán Munoz, 2001. "Leaving home in Europe: the experience of cohorts born around 1960," MPIDR Working Papers WP-2001-014, Max Planck Institute for Demographic Research, Rostock, Germany.
    12. Brugiavini, Agar & Padula, Mario, 2001. "Too much for retirement? Saving in Italy," Research in Economics, Elsevier, vol. 55(1), pages 39-60, March.
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    Cited by:
    1. Erich Battistin & Agar Brugiavini & Enrico Rettore & Guglielmo Weber, 2008. "The retirement consumption puzzle: evidence from a regression discontinuity approach," IFS Working Papers W08/05, Institute for Fiscal Studies.
    2. Francesco C. Billari & Guido Tabellini, 2010. "Italians Are Late: Does It Matter?," NBER Chapters, in: Demography and the Economy, pages 371-412 National Bureau of Economic Research, Inc.
    3. Sascha Becker & Samuel Bentolila & Ana Fernandes & Andrea Ichino, 2010. "Youth emancipation and perceived job insecurity of parents and children," Journal of Population Economics, Springer, vol. 23(3), pages 1047-1071, June.
    4. Sara Ayllón, 2009. "Modelling State Dependence and Feedback Effects between Poverty, Employment and Parental Home Emancipation among European Youth," SOEPpapers on Multidisciplinary Panel Data Research 235, DIW Berlin, The German Socio-Economic Panel (SOEP).
    5. Deborah A. Cobb-Clark, 2008. "Leaving Home: What Economics Has to Say about the Living Arrangements of Young Australians," CEPR Discussion Papers 568, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    6. Sara Ayllón, 2009. "Poverty and living arrangements among youth in Spain, 1980-2005," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 20(17), pages 403-434, April.
    7. Nuno Martins & Ernesto Villanueva, 2006. "Does limited access to mortgage debt explain why young adults live with their parents?," Banco de Espa�a Working Papers 0628, Banco de Espa�a.

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