Abstract
Southern Europe is characterized by high levels of intergenerational earnings persistence and high levels of co-residence between parents and their offspring. In contrast, Northern Europe exhibits low levels of earnings persistence and of co-residence. In light of this evidence, I develop a sequential game between parents and children over co-residence: richer parents with a preference for co-residence bribe their children to keep them at home, and therefore those children have more resources to invest in education, generating higher income persistence. Next, I embed the game in an overlapping-generation model with heteroegeneous agents, endogenous education, co-residence, and inter-vivos transfers. I show that the model can explain 20 percent of the difference in intergenerational earnings persistence between Italy and Sweden.