Working Paper: CEPR ID: DP5116
Authors: Marco Manacorda; Enrico Moretti
Abstract: More than 80% of Italian men aged 18-30 live with their parents. We argue that one contributing factor to this remarkably high rate of cohabitation is parents? tastes for co-residence. In order to investigate the role of parental preferences, we estimate the effect of exogenous changes in parental income on rates of cohabitation in Italy using SHIW micro-data from 1989 to 2000. The key econometric issue is the potential endogeneity of parental income. In order to identify a source of exogenous variation in parental income, we use changes in fathers? retirement age induced by the 1992 reform of the Italian Social Security system as an instrumental variable for parental income. By raising retirement age, this reform forced some fathers to remain in the labour market longer than they would have otherwise, therefore raising their disposable income. We use a two-sample instrumental variable (TSIV) strategy. Our TSIV estimates indicate that a rise in parents? income significantly raises the children?s propensity to live at home: a 10% increase in annual parental income results in approximately a 10% rise in the proportion of boys living with their parents. Although we cannot definitely rule out alternative interpretations, these results are consistent with our hypothesis that cohabitation is a normal good for Italian parents.
Keywords: family structure; living arrangements; two-sample IV
JEL Codes: H55; J12; J61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Parental income (D31) | Probability of children living at home (J13) |
| Increase in parental income (J12) | Increase in probability of cohabitation (J12) |
| 1 million lira increase in parental income (D19) | Probability of cohabitation (J12) |
| Parental income (D31) | Cohabitation as a normal good (D19) |