Discussion Paper No. 729

DO BEQUESTS INCREASE OR
DECREASE WEALTH INEQUALITIES?

Charles Yuji Horioka

January 2009

The Institute of Social and Economic Research
Osaka University
6-1 Mihogaoka, Ibaraki, Osaka 567-0047, Japan

Do Bequests Increase or Decrease Wealth Inequalities?*
Charles Yuji Horioka**Institute of Social and Economic Research
Osaka University

December 27, 2008

Abstract
This paper finds that individuals in Japan do not leave very significant bequests, thatparents often require a quid pro quo for bequests to their children, and that wealthier
individuals leave less bequests, meaning that bequests ameliorate wealth inequalities.

JEL classification codes: D12, D91, E21

Keywords: Bequests, Inheritances, Intergenerational transfers, Wealth inequalities, Life
cycle wealth* I am indebted to the Institute for Research on Household Economics for conducting
the survey used in this paper and for granting me permission to use these data, to Tae
Okada for capable research assistance, to Wataru Kureishi, Keiko Murata, Kazuyasu
Sakamoto, Sawako Shirahase, and Midori Wakabayashi for helpful comments, and to
the Ministry of Education, Culture, Sports, Science and Technology of the Japanese
Government for Grant-in-Aid for Scientific Research Category B (topic number18330068) and Category S (topic number 20223004), which supported this research.

**Charles Yuji Horioka, Institute of Social and Economic Research, Osaka University,
6-1, Mihogaoka, Ibaraki, Osaka 567-0047, Japan.
+81-6-6878-2766.

Tel.: +81-6-6879-8586; fax

E-mail address: horioka@iser.osaka-u.ac.jp

Forthcoming in Economics Letters (accepted December 11, 2008).

1. Introduction

The increasing inequality of income, wealth, employment opportunities, etc.,
is a topic of deep concern not only to economists but also to policymakers and to thepublic at large in all countries, and bequests and other intergenerational transfers havebeen suggested as one cause of increasing inequalities.

If individuals leave

substantial bequests and other intergenerational transfers, if bequests are unrequited(involving no quid pro quo), and if wealthier individuals leave more bequests, bequests
will increase the inequality of the wealth distribution and cause wealth inequalities tobe passed on from generation to generation. The purpose of this paper is to test eachof these three premises in turn.

2. The Data SourceThe data I use is this paper are taken from the “Setai-nai Bunpai to Sedai-kan
Iten ni kansuru Kenkyuu Chousa (Survey of Intra-household Distribution andIntergenerational Transfers),” which was conducted in Japan during the October
6-December 8, 2006, period by the Institute for Research on Household Economics(Zaidan Houjin Kakei Keizai Kenkyuusho). This survey surveyed married women
between the ages of 20 and 59 from throughout Japan using a paper questionnaire thatwas dropped off, then picked up later.

4200 households were selected and surveyedusing a two-stage sampling procedure, resulting in 2814 observations (a response rateof 67.00%).

This survey collects detailed information on bequests including

information on bequests received, bequest motives, bequest division, etc., and thus isideally suited to an analysis of bequests (see Sakamoto (2008) for more details on thissurvey).
The number of observations in the aforementioned survey is 2,814, but only
1,778 observations remained after deleting observations with missing information on
bequests received, holdings of financial assets and real assets, and loans outstanding.
All monetary variables except for holdings of real assets are in category form
1

and thus were converted to continuous form as follows: households that selectedcategories other than the lowest and highest categories were assigned the midpoint of
the lower bound and the upper bound of the category they selected.

Households that

selected the lowest category were assigned a value equal to 0.8 times the upper boundof the lowest category. Finally, households that selected the highest category wereasked the actual value of their holdings of the asset or liability in question, and if theyanswered this question, they were assigned the actual value of their holdings. If they
did not answer this question, they were assigned a value equal to 1.25 times the lower
bound of the highest category.

3. Do Individuals Leave Substantial Bequests?

The data source we use is unusual in collecting data on the value of bequests(financial assets such as bank and postal deposits, negotiable securities, etc., as well as
real assets such as land, housing, etc.) received from already deceased parents and/orparents-in-law.

As Table 1 shows, respondents receiving bequests from alreadydeceased parents and/or parents-in-law received an average of 14.334 million yen (or143,340 U.S. dollars assuming an exchange rate of 100 yen per dollar).

However,since only 23.96 percent of respondents had received bequests from already deceased
parents and/or parents-in-law, the average bequest received of all households was only
3.434 million yen (or 34,340 dollars).
The total wealth (net worth) of respondents can be calculated by subtracting debt
outstanding (housing debt and non-housing debt outstanding) from the sum of financial
assets (bank and postal deposits, negotiable securities, life insurance, etc.) and real
assets (land, housing, etc.).

The average wealth (net worth) of respondents thus

calculated was 22.627 million yen (or 226,270 dollars), so the average bequest
received of respondents receiving bequests from their parents and/or parents-in-law
was a full 63.35% of average net worth but the average bequest received of allhouseholds was only 15.18% of their average net worth.
Finally, it is possible to calculate life cycle wealth by subtracting bequests
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received from total wealth (net worth), and if this is done, life cycle wealth amounts to19,193 million yen (or 191,930 dollars).

This implies that the average bequest

received of all households was only 17.89% of life cycle wealth, meaning that thewealth of respondents increased by only 17.89% as a result of receiving bequests fromtheir parents and/or parents-in-law.
Many researchers have attempted to measure the share of bequests and otherintergenerational transfers in total household wealth, the best-known attempt being thatof Kotlikoff and Summers (1981), who obtained the surprising finding thatintergenerational transfers account for about 80 percent of total household wealth in
the United States.

By contrast, Modigliani (1988) obtained the diametrically opposed

finding that intergenerational transfers account for only about 20 percent of total
household wealth in the United States (see also Kotlikoff (1988)).
A number of researchers have done a similar calculation for Japan, including
Hayashi (1986), who found that intergenerational transfers account for at least 9.6% of
total household wealth, Dekle (1989), who obtained figures of 3-27% and at most48.7%, depending on the calculation method used, Campbell (1997), who obtained
figures of at most 28.1% and at most 23.4%, depending on the calculation method used,Barthold and Ito (1992), who obtained a range of 27.8-41.4%, and Horioka, et al.
(2002), who obtained a figure of 23.9%. Thus, the results for Japan are closer toModigliani’s (1988) figure than to Kotlikoff and Summers’ (1981) figure, and the15.18% figure obtained in the current study is no exception.１It thus appears that

individuals do not leave substantial bequests in Japan.

4. Are Bequests Unrequited?

The survey we used in our analysis also asked respondents about whether theyplan to leave a bequest to their children and how they plan to divide their bequest
among their children, and according to the results of the survey, 48.16% of respondents
with two or more children plan to divide their bequest equally, 29.90% do not plan toleave a bequest, and 21.94% plan to divide their bequest unequally, with the vast3

majority of those in the third group planning to leave more to the child who lives withor near them, who provides help with housework, who provides nursing care, whoprovides financial assistance, and/or who takes over the family name or the familybusiness. Thus, more than half (51.84%) of respondents either do not plan to leave abequest or plan to leave more to the child who provides some sort of quid pro quo,
most commonly some sort of assistance during old age (see Horioka (2008) for moredetails).

Thus, it seems that more than half of Japanese are selfishly motivated, either

not leaving any bequest at all or requiring a quid pro quo such as assistance during oldage. Moreover, other surveys have asked similar questions and obtained broadly
consistent results (see, for example, Horioka, et al. (2000) and Horioka (2002), and see
also Horioka (1993), Hayashi (1995), and Wakabayashi and Horioka (2008) for othertypes of evidence on this issue).

5. Are Wealthier Individuals More Likely to Receive Bequests?

If wealthier individuals are more likely to receive bequests, bequests willcontribute to exacerbating wealth inequalities, but our results show that the correlation
between bequests received and life cycle wealth is -0.170, meaning that wealthier
individuals leave less bequests than less wealthy individuals, implying that bequests
actually ameliorate wealth inequalities.２
The coefficient of variation of life cycle wealth and total household wealth are
1.54 and 1.34, respectively, meaning that the coefficient of variation decreases by 0.20
when bequests received are included in household wealth. This finding is consistent
with our aforementioned finding that wealthier individuals leave less bequests and thatbequests ameliorate wealth inequalities.

6. Conclusion

I analyzed data from a new and unique Japanese household survey and obtained
the following findings: individuals in Japan do not appear to leave very significant
4bequests, with bequests received accounting for only about 15 percent of total
household wealth, and parents often require a quid pro quo (such as some sort ofassistance during old age) for bequests left to their children, meaning that net transfersfrom parents to children (net of transfers in the other direction such as financial andin-kind assistance from children to parents during old age) are even less important than
the above figure suggests.

Furthermore, even if bequests were quantitatively

important, wealthier individuals leave less bequests than less wealthy individuals,
meaning that bequests ameliorate wealth inequalities rather than exacerbating them anddo not cause wealth inequalities to be passed on from generation to generation.

Thus,

it does not appear necessary to alleviate the adverse impact of bequests on wealthinequalities by raising inheritance taxes or using other means.

References
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Political Economy of Tax Reform (Chicago: University of Chicago Press), pp.
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Fischer, ed., NBER Macroeconomics Annual 1986, vol. 1 (Cambridge,Massachusetts: MIT Press), pp. 147-210.
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Test Based on Engel Curves," Journal of Political Economy, vol. 103, no. 3 (July), pp.
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ha Riko-teki ka Rita-teki ka, Ouchou-teki ka? (Bequest Motives and Parent-ChildRelations in Japan: Are the Japanese Selfish, Altruistic, or Dynastic?),” in CharlesYuji Horioka and Institute for Research on Household Economics, eds., Setai-nai
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１

It is low even compared to other studies for Japan, and one possible reason is that it

does not include inter vivos transfers.
２

If the relative importance of inter vivos transfers increases with wealth due to tax

considerations, etc., the correlation between bequests received and life cycle wealthmight overstate the correlation between all intergenerational transfers and life cycle
wealth.

Unfortunately, we cannot confirm this point because the data set used in thispaper does not collect information on inter vivos transfers.
Kazuyasu Sakamoto for this point.

7

I am indebted to