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Intergenerational Transfers and Household Structure. Why Do Most Italian Youths Live With Their Parents?

  • Marco Manacorda
  • Enrico Moretti

85 percent of Italian men aged 18-33 live with their parents. We argue that Italian parents like to live with their children and a rise in their income makes it possible for them to offer their children higher consumption in exchange for their presence at home. Children prefer to live on their own but are willing to exchange some independence for extra consumption. We formalize this intuition with a bargaining model between parents and children. We test the predictions of the model by estimating the effect of parental income on the probability that children live with their parents. The key econometric issue is the endogeneity of parental income. In order to identify the causal effect of parental income on children's living arrangements we use changes in parents' retirement age induced by the 1992 reform of the Italian social security as an instrument for parental income. By raising retirement age, this reform forced some fathers to remain in the labor market longer than the cohort immediately preceding them, therefore raising their income. Our instrumental variable estimates indicate that a rise in parents' income significantly raises the children's propensity to live at home: a $500 increase in annual parental income results in a 3 to 3.5 percentage point rise in the proportion of children living with their parents.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0536.

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Date of creation: Jun 2002
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Handle: RePEc:cep:cepdps:dp0536
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Deaton, Angus S & Ruiz-Castillo, Javier & Thomas, Duncan, 1989. "The Influence of Household Composition on Household Expenditure Patterns: Theory and Spanish Evidence," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 179-200, February.
  2. Costa, Dora L, 1997. "Displacing the Family: Union Army Pensions and Elderly Living Arrangements," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1269-92, December.
  3. Joseph G. Altonji & Fumio Hayashi & Laurence Kotlikoff, 1995. "Parental Altruism and Inter Vivos Transfers: Theory and Evidence," NBER Working Papers 5378, National Bureau of Economic Research, Inc.
  4. Sue Fernie & Helen Gray, 2002. "Its a Family Affair: the Effect of Union Recognition and Human Resource Management on the Provision of Equal Opportunities in the UK," CEP Discussion Papers dp0525, Centre for Economic Performance, LSE.
  5. McElroy, Marjorie B, 1985. "The Joint Determination of Household Membership and Market Work: The Case of Young Men," Journal of Labor Economics, University of Chicago Press, vol. 3(3), pages 293-316, July.
  6. Marianne P. Bitler & Jonah B. Gelbach & Hilary W. Hoynes, 2002. "The Impact of Welfare Reform on Living Arrangements," NBER Working Papers 8784, National Bureau of Economic Research, Inc.
  7. Gary S. Becker, 1981. "A Treatise on the Family," NBER Books, National Bureau of Economic Research, Inc, number beck81-1, August.
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