Shall I Follow my Brother? Sibling Spillover E¤ects in Living Arrangements

In Southern Europe youngsters leave the parental home signi…cantly later than in Northern Europe and United States. Policies have been implemented in Southern Europe to incentivize young adults to leave parental home earlier. Do peer e¤ects among siblings modify the e¤ects of these policies? Estimating peer e¤ects is challenging because of problems of re‡ection, endogenous group formation, and correlated unobservables. We overcome these issues in the context of a Spanish rental subsidy, exploiting the subsidy eligibility age threshold to analyze peer e¤ects among siblings. Instrumental variable estimates show that peer e¤ects among siblings are negative, and that the e¤ect is explained by the presence of old and single parents, and attenuated by the presence of additional siblings in the household. Findings indicate that policy makers should target the household rather than the individual, and combine policies for young adults together with policies for the elderly. JEL Codes: J1, H2, I3