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

32 Pages Posted: 22 Feb 2005 Last revised: 2 Mar 2005

See all articles by Rob Alessie

Rob Alessie

Utrecht University - School of Economics; VU University Amsterdam - Department of Economics

Agar Brugiavini

Ca Foscari University of Venice - Dipartimento di Economia

Guglielmo Weber

University of Padua - Department of Economics; Centre for Economic Policy Research (CEPR); Institute for Fiscal Studies (IFS)

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Date Written: January 2005

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.

Suggested Citation

Alessie, R.J.M. (Rob) and Brugiavini, Agar and Weber, Guglielmo, Saving and Cohabitation: The Economic Consequences of Living with One's Parents in Italy and the Netherlands (January 2005). NBER Working Paper No. w11079. Available at SSRN: https://ssrn.com/abstract=653024

R.J.M. (Rob) Alessie

Utrecht University - School of Economics ( email )

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Adam Smith Building
Utrecht, 3584 EC
Netherlands
31 30 253 9814 (Phone)
31 30 253 7373 (Fax)

HOME PAGE: http://www2.econ.uu.nl/users/alessie/

VU University Amsterdam - Department of Economics ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands
+31 20 444 6047 (Phone)
+31 20 444 6005 (Fax)

Agar Brugiavini

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Guglielmo Weber (Contact Author)

University of Padua - Department of Economics ( email )

via Del Santo 33
Padova, 35123
Italy
+39 049 827 4271 (Phone)
+39 049 827 4221 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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