Intergenerational Coresidence and Fertility during the American Demographic Transition: Theory and Evidence

We study the U.S. fertility transition by family type and document a novel fact: intergenerational coresidence has been systematically associated with lower fertility than nuclear families. This gap has been narrowing over time. This fact cannot be easily explained by existing theories. We propose a new theory in which both fertility and family structure are endogenous. In our theory, a positive fertility differential in favour of the nuclear family emerges when the amount of resources allocated to the young generation under coresidence is lower than the amount they would enjoy in a nuclear family. The allocation of resources depends on the income of the young relative to that of their coresiding parents and on preferences for intergenerational coresidence. We derive the model analytically, and find empirical support for its main mechanism. Simulations from a calibrated dynamic general equilibrium version of the model confirm that the model has the right qualitative behaviour, and is quantitatively meaningful.