ISSN (Print) 0473-453X

Discussion Paper No. 1102

ISSN (Online) 2435-0982

IS THE SELFISH LIFE-CYCLE MODEL
MORE APPLICABLE IN JAPANAND, IF SO, WHY?
A LITERATURE SURVEYCharles Yuji Horioka

September 2020

The Institute of Social and Economic Research
Osaka University
6-1 Mihogaoka, Ibaraki, Osaka 567-0047, JapanIs the Selfish Life-Cycle Model More Applicable in Japan and, If So,
Why? A Literature Survey
Charles Yuji Horioka(Research Institute for Economics and Business Administration, Kobe University;
Asian Growth Research Institute; Institute of Social and Economic Research, Osaka
University; and National Bureau of Economic Research)
September 2020

Abstract
The selfish life-cycle model or hypothesis is, together with the dynasty or altruism model,
the most widely used theoretical model of household behavior in economics, but does
this model apply in the case of a country like Japan, which is said to have closer familyties than other countries? In this paper, we first provide a brief exposition of the simplest
version of the selfish life-cycle model and then survey the literature on household saving
and bequest behavior in Japan in order to answer this question. The paper finds that
almost all of the available evidence suggests that the selfish life-cycle model applies toat least some extent in all countries but that there is more consistent support for thismodel in Japan than in the United States and other countries. It then explores possible
explanations for why the life-cycle model is more consistently supported in Japan thanin other countries, attributing this finding to government policies, institutional factors,
economic factors, demographic factors, and cultural factors. Finally, it shows that thefindings of the paper have many important implications for economic modeling and forgovernment tax and expenditure policies.
Keywords: Age structure; altruism; bequest motives; borrowing constraints;
consumption; culture; dissaving; dynasty model; elderly; family ties; household saving;inheritances; intergenerational transfers; Japan; life-cycle model; religiosity; retirement;
Ricardian equivalence; saving motives; selfishness; social norms
Journal of Economic Literature (JEL) classification codes: D11, D12, D14, D15, D64,
E21, J14

Address for correspondence: Charles Yuji Horioka, Research Institute for Economics
and Business Administration, Kobe University, 2-1, Rokkodai-cho, Nada-ku, Kobe,
Hyogo 657-8501, JAPAN. Email: horioka@rieb.kobe-u.ac.jp

1. Introduction
The selfish life-cycle model or hypothesis is, together with the dynasty or altruism modelof Barro (1974) that assumes the presence of intergenerational altruism, the most widelyused theoretical model of household behavior in economics. Many researchers haveinvestigated whether or not this model applies in North America, Europe, and elsewhere(see, for example, Modigliani (1975), Deaton (1992, 2005), Browning and Lusardi(1996), Hayashi (1997b), Attanasio (1999), Browning and Crossley (2001), Baranzini(2005), Attanasio and Weber (2010), and Jappelli and Pistaferri (2017) for usefulsurveys). However, whether or not the selfish life-cycle model applies in the case of acountry like Japan, which is said to have closer family ties than other countries is anotherquestion.
The purpose of this paper is to provide a brief exposition of the simplest version of theselfish life-cycle model and to then survey the literature on household saving andbequest behavior in Japan to shed light on whether or not the selfish life-cycle model
applies in the case of Japan. There have been many comprehensive surveys of theliterature on household saving, consumption, and bequest behavior in Japan (forexample, Hayashi (1986, 1992, 1997a), Horioka (1984, 1990, 1993, 2008a), and Ogawa
and Horioka (1996)), but this paper is unique in focusing on the question of whether or
not the selfish life-cycle model applies and in surveying the literature on a wide variety
of approaches including not only studies of saving behavior (e.g., studies of the impactof the age structure of the population on the saving rate, the saving behavior of the retired
elderly, saving motives, and the importance of borrowing (liquidity) constraints) but alsostudies of bequest behavior (e.g., studies of the prevalence of bequests, bequest motives,
and tests of altruism). I emphasize my own research because, over the years, I have trieda variety of approaches to test the validity of the selfish life-cycle model.
One view that has its adherents even today is that the laws of Western economics(including the selfish life-cycle model) do not apply in the case of Japan, that theJapanese are not rational utility maximizers, and that the economic behavior of theJapanese is largely determined by the country’s unique culture and social norms,
especially its Confucian heritage (see Morishima, 1982, and Katzner, 1999, 2008).1 For
example, a common view is that Japan’s high household saving rate is attributable tonational character, culture, or Confucian teachings concerning frugality (see, forexample, Horioka, 1990, 2019, Garon, 1997, pp. 164-165). Thus, it is of great interest
to examine whether or not the selfish life-cycle model applies in the case of a nonWestern country such as Japan despite enormous differences in culture and social norms.
To preview the main findings of this paper, it finds that almost all of the available
evidence suggests that the selfish life-cycle model applies at least to some extent in all
countries but that there is more consistent support for this model in Japan than in the
United Sates and other countries. Thus, the answer to the question posed in the title of
See Guiso, et al. (2006) for a more general discussion of how culture affects economic outcomesby affecting people’s beliefs, values, or preferences and for a brief discussion of the impact ofreligiosity (an important component of culture) on attitudes toward thrift and actual saving behavior.
1
1

this paper is an unqualified “yes.” The paper then explores possible explanations for why
the selfish life-cycle model is more consistently supported in Japan than in othercountries, attributing this finding to government policies, institutional factors, economic
factors, demographic factors, and cultural factors. Finally, it shows that the findings ofthe paper have many important implications for economic modeling and for government
tax and expenditure policies.
This paper is organized as follows: we provide a brief exposition of the simplest versionof the selfish life-cycle model in section 2; we survey the literature on the impact of theage structure of the population on the saving rate in section 3, that on the saving behaviorof the retired elderly in section 4, that on saving motives in section 5, that on theprevalence of bequests in section 6, that on bequest motives in section 7, that on tests ofaltruism in section 8, and that on the importance of borrowing constraints in section 9;
we explore possible explanations for why there is more consistent support for the selfish
life-cycle model in Japan than there is in other countries in section 10; and we summarize
our findings and discuss the implications thereof for economic modelling and forgovernment tax and expenditure policies in section 11.
2. The Selfish Life-Cycle ModelIn this section, we provide a brief exposition of the simplest version of the selfish lifecycle model, which is primarily attributable to Franco Modigliani and his collaborators(for more details, see Modigliani and Brumberg (1954, 1980), Ando and Modigliani(1963), Modigliani (1966), Modigliani (1975), Baranzini (2005), and Deaton (2005)).
In a nutshell, this model assumes that individuals are rational, forward-looking, andselfish, that they maximize their own lifetime utility subject to a lifetime budget
constraint, and that they neither receive nor leave bequests and other intergenerationaltransfers. Since most individuals retire at some point in their lives, this model requires
individuals to save part of their earnings during their working years to prepare for living
expenses during retirement and to finance their living expenses during retirement bydrawing down (decumulating) their previously accumulated assets.
In order to simplify the model as much as possible, we ignore the childhood years andassume that individuals graduate from school and start working at age 0 and that theywork from age 0 until age R, earning Y yen each year, part of which they use to financetheir current consumption and part of which they save in preparation for their living
expenses during retirement. We further assume that individuals retire at the exogenous
retirement age R, that they finance their living expenses during retirement by drawing
down their previously accumulated assets, and that they die with certainty at age L.
Finally, we assume that individuals smooth their consumption throughout their lives,
consuming C yen per year from age 0 until age L, and that they are selfish, receiving nobequests or inter vivos transfers from their parents and leaving no bequests or inter vivos
transfers to their children (see Figure 1).
If we assume that the interest rate is zero for the sake of simplicity, these assumptions2

imply that lifetime income will be Y*R and that lifetime consumption will be C*L. Thus,
the lifetime budget constraint can be expressed as follows:(1)

Y*R = C*L

If equation (1) is solved for C, we can obtain the following expression for C, which
denotes the annual amount of consumption:(2)

C = (R/L)*Y

In words, consumption will be a constant fraction of income, with that fraction being
equal to the ratio of one’s working years to total lifespan.
SW, the annual saving of working individuals can be calculated by subtracting
consumption C from income Y and substituting the expression in equation (2) for C:(3)

SW = Y – C = (1 – R/L)*Y = ((L – R)/L)*Y

In words, the saving of working individuals will be a constant fraction of their income,with that fraction being equal to the ratio of their retirement span to total lifespan.
Moreover, since individuals are assumed to work for R years, CSW, the cumulativesaving of working individuals, is as follows:(4)

CSW = R*((L – R)/L)*Y = (L – R)*(R/L)*Y

As for retired individuals, since they have no income but need to consume, theirconsumption will be financed entirely by drawing down their previously accumulated
saving. Thus, SR, the annual (dis)saving of retired individuals, is as follows:(5)

SR = – C = – (R/L)*Y

Moreover, since the retirement span of retired individuals is (L – R) years, CSR, thecumulative (dis)saving of retired individuals, is as follows:(6)

CSR = – (L – R)*(R/L)*Y

As can be seen by comparing equations (4) and (6), the cumulative saving of working
individuals and the cumulative (dis)saving of retired individuals are precisely equal toone another in absolute value but have opposite signs. This confirms that the lifetime
budget constraint of individuals is satisfied. This is the same as saying that the area ofthe rectangle showing the cumulative saving of individuals during their working years
is exactly equal to the area of the rectangle showing the cumulative (dis)saving ofindividuals during their retirement years in Figure 1.
Next, we wish to derive the saving amount and saving rate of the household sector as a3

whole on the assumption that all households are identical. From equations (3) and (5),AS, the aggregate saving of the household sector as a whole, is as follows:(7)

AS = POP(0, R)*((L – R)/L)*Y – POP(R, L)*(R/L)*Y,

where POP(0, R) = the population aged 0 to R (the working-age population)
POP(R, L) = the population aged R to L (the retirement-age population)
Furthermore, AY, the aggregate income of the household sector as a whole, is as follows:(8)

AY = POP(0, R)*Y

Thus, ASY, the saving rate of the household sector as a whole, is as follows:(9)

ASY = AS/AY = (L – R)/L – [POP(R, L)/POP(0, R)]*(R/L)

In other words, the saving rate of the household sector as a whole should be a functionof the ratio of the retirement-age population to the working-age population, and thehigher is this ratio, the lower should be the household saving rate. Moreover, thederivative of the household saving rate with respect to this ratio should equal thenegative of the ratio of one’s working years to total lifespan.
Thus, we can test whether the selfish life-cycle model applies in the real world byexamining whether or not the age structure of the population (in particular, the ratio of
the retirement-age population to the working-age population) has the expected impact
on the household saving rate.
Thus far, we have simplified our theoretical model by making the following
assumptions:
(1)
(2)
(3)

There is no economic growth.
There is no public old-age pension system.
There is no lifespan uncertainty.

The age structure of the population will have an impact on the household saving rateeven if these simplifying assumptions are relaxed, but what will change is that now otherfactors will also affect the household saving rate.
(1)

If the economy is growing, cohorts born later will have higher lifetime
incomes than cohorts born earlier, and thus the aggregate saving of cohortsthat are working and saving will exceed the aggregate dissaving of cohorts thatare retired and dissaving in absolute value. As a result, if the economy isgrowing, the aggregate saving of the household sector as a whole will bepositive, and the higher is the economic growth rate, the greater will be theaggregate saving of the household sector as a whole.

(2)

If a public old-age pension system is introduced, there will be less need to save4

in preparation for living expenses during retirement, and thus one would
expect the saving of working-age individuals and the (dis)saving of retired
individuals to be less than in a world with no public old-age pension system(see, for example, Feldstein (1974)).
(3)

If lifespan is uncertain and individuals are risk-averse, one would expect thesaving of working-age individuals to be greater and the dissaving of
retirement-age individuals to be less than in a world with no lifespan
uncertainty because individuals will be afraid of running out of money before
they die (see Davies (1981)). This will lead individuals to leave unintended or
accidental bequests unless they are able to completely annuitize their wealth.

3. Evidence on the Impact of the Age Structure of the Population on the Saving
Rate
As we showed in the previous section, if the selfish life-cycle model applies, thehousehold saving rate should be a decreasing function of the ratio of the retirement-age
population to the working-age population. Thus, we can shed light on the applicabilityof the selfish life-cycle model by investigating whether or not the age structure of the
population has the expected impact on the saving rate.
The author has used various types of data to investigate the impact of the age structureof the population on the saving rate, and in this section, we survey this body of work andconsider whether or not the findings are consistent with the selfish life-cycle model. In
subsection 3.1, we discuss papers that make use of cross-country or cross-provincial data,
while in subsection 3.2, we discuss papers that make use of time-series data for Japan.

3.1.

Evidence based on Cross-Country and Cross-Provincial Data

Horioka (1986, 1989) uses data on the member countries of the Organisation for
Economic Co-operation and Development (OECD) for the 1975-84 period from theOECD to analyze the determinants of the private saving rate and finds that the ratio of
the retirement-age population to the working-age population has a negative andstatistically significant impact on the private saving rate.
Based on his estimation results, Horioka (1986, 1989) calculates the contribution of eachfactor to the difference between Japan’s private saving rate and the OECD-wide averageand to the U.S.-Japan saving rate gap (see Table 1). During the 1975-84 time period,
Japan’s population was the youngest and her retirement-age population to working-age
population ratio was the lowest among all OECD member countries at the time, and as
Table 1 shows, this can explain virtually all of the difference between Japan’s private
saving rate and the OECD-wide average and about half of the U.S.-Japan saving rate
gap.
Similarly, Horioka and Terada-Hagiwara (2012) use panel data on twelve Asian5

countries for the 1966-2007 period from Penn World Tables to analyze the determinantsof the domestic saving rate, and as in the case of Horioka (1986, 1989), they find thatthe ratio of the retirement-age population to the working-age population has a negativeand statistically significant impact on the domestic saving rate.
Finally, Horioka and Wan (2007) use provincial panel data for the 1995-2004 period
from a household survey to analyze the determinants of the household saving rate in
China and find that the impact of the ratio of the retirement-age population to theworking-age population is negative, as expected, but often not statistically significant.
The reader is referred to Loayza, Schmid-Hebbel, and Serven (2000) for a survey ofmore recent research and for a comprehensive econometric analysis. Virtually all of thepapers surveyed in this paper as well as the analysis in this paper itself find, as expected,that the ratio of the retirement-age population to the working-age population has anegative and statistically significant impact on the private saving rate.

3.2.

Evidence based on Time-Series Data

Horioka (1997) uses time-series data for the 1955-93 period from Japan’s National
Accounts to analyze the determinants of Japan’s household saving rate and finds that
there is a cointegrating relationship between the household saving rate and the ratio of
the retirement-age population to the working-age population and that this ratio has anegative and statistically significant impact on the household saving rate (see Horioka(1991) and Koga (2006) for similar studies for Japan and Modigliani and Cao (2004) fora similar study for China, all of which obtain broadly consistent results).
Figure 2 shows trends over time in National Accounts data on Japan’s household savingrate for the 1955-2018 period, and as can be seen from this figure, Japan’s householdsaving rate showed a steady upward trend from 1955 until the mid-1970s, peaking at
23.2%, and showed a steady downward trend thereafter, sometimes even becoming
negative.
The ratio of the retirement-age population to the working-age population in Japan has
shown a steady upward trend over time so Horioka’s (1997) finding that this ratio has anegative and statistically significant impact on the household saving rate implies that the
upward trend in this ratio can explain the downward trend in Japan’s household savingrate since the mid-1970s and that further increases in this ratio will cause further declines
in Japan’s household saving rate in future years (see Horioka (1989, 1992)).
As for why Japan’s household saving rate showed a steady upward trend from 1955 until
the mid-1970s, Horioka (2008a) argues that it was due to the steady downward trend in
the ratio of minors (those aged 0 to 19) to the working-age population during the same
period, which in turn was due to the decline in the fertility rate. The ratio of minors to
the working-age population would be expected to have a negative impact on thehousehold saving rate, as in the case of the ratio of the retirement-age population to theworking-age population, because minors contribute to consumption without contributing
6

to income.

3.3.

Summary

In this section, we showed that the ratio of the retirement-age population to the workingage population has a negative and statistically significant impact on the saving rate
whether one uses cross-country data or time-series data. This not only suggests that theselfish life-cycle model applies in the case of Japan but also that the low ratio of theretirement-age population to the working-age population can explain why Japan’s
household saving rate was so high in the past and that the sharp increase in this ratio can
explain the sharp decline in Japan’s household saving rate since the mid-1970s. Thus,
the selfish life-cycle model can explain the level of, as well as trends over time in,Japan’s household saving rate. However, we should note that the selfish life-cycle model
is not the only theoretical model that predicts that the age structure of the population
will have a significant impact on the household saving rate and thus that, although we
can conclude that the evidence is consistent with the selfish life-cycle model, we cannot
assert that we have unequivocably established that the selfish life-cycle model applies
in the case of Japan.

4. Evidence on the Saving Behavior of the Retired Elderly
The selfish life-cycle model assumes that working individuals save and that retired
individuals dissave. Thus, we can shed light on the applicability of the selfish life-cycle
model by examining the saving behavior of the retired elderly (see Weil (1994) and De
Nardi, French, and Jones (2016) for excellent surveys of this literature). In this section,
we survey studies that examine the saving behavior of the retired elderly in Japan andconsider whether or not their findings are consistent with the selfish life-cycle model.
All of the papers we surveyed find that the retired elderly in Japan dissave, at least after
a certain age, which constitutes evidence in favor of the selfish life-cycle model. For
example, Hayashi, et al. (1988) carefully analyze household-level data from the“National Survey of Family Income and Expenditure,” which is conducted every five
years by the Statistics Bureau of the Japanese Ministry of Internal Affairs andCommunications and find that the elderly start dissaving after the age of 80 whether they
live in nuclear households or extended (three-generation) households. However, Hayashi,
et al. (1988) do not take account of the employment status of respondents, and if they
had confined their sample to the retired elderly, they are likely to have found that theJapanese elderly start dissaving at an earlier age.
Horioka (2006, 2010) and Horioka and Niimi (2017) analyze tabulated data on theretired elderly from the “Family Income and Expenditure Survey,” which is conductedby the Statistic Bureau of the Japanese Ministry of Internal Affairs and Communications,and find that the saving rate of such households has fluctuated in the -40 to -10% range
and that their decumulation rate of financial assets has fluctuated in the 1 to 3% range
7since 2000.2 These findings constitute convincing evidence that the retired elderly inJapan are dissaving and suggest that the selfish life-cycle model applies in the case ofJapan (see also Horioka, et al. (1996), Horioka and Niimi (2017), and Niimi and Horioka(2019)).
However, we should note that the selfish life-cycle model is not the only theoreticalmodel that predicts that the retired elderly should dissave and thus that, although we canconclude that the evidence is consistent with the selfish life-cycle model, we cannot
assert that we have unequivocably established that the selfish life-cycle model applies
in the case of Japan.
5. Evidence on Saving Motives
The simplest version of the selfish life-cycle model implies that individuals should besaving primarily for living expenses during retirement and that they should not be saving
to leave bequests to their children. Thus, we can shed light on the applicability of theselfish life-cycle model by looking at the relative importance of saving for individual
motives. In this section, we survey studies that attempt to estimate the contribution ofsaving for each motive to total household saving in Japan and other countries andconsider whether or not the findings are consistent with the selfish life-cycle model. Ourfindings support the selfish life-cycle model because they show that saving for life-cycle
motives such as retirement are much more important than saving for bequests in Japan
as well as in many other countries.
Before turning to our findings, however, let us first explain the methodology we used to
calculate the amount of saving for each motive. If individuals cannot realize a given
motive with only their current income, they need to rely on saving. Moreover, at any
given time, there will be individuals who are saving in order to prepare for a given
motive as well as individuals who are dissaving to realize the same motive. For example,
at any given time, there will be pre-retirement individuals who are saving for retirement
as well as post-retirement individuals who are dissaving for retirement. Thus, thecontribution that saving for a given motive makes to aggregate household saving is net
saving for that motive, which can be calculated as gross saving for that motive minus
dissaving for that motive. Mathematically,(10)

NS = net saving for a given motive = GS – DS
where GS = gross saving for a given motive
DS = dissaving for a given motive

Furthermore, there are two ways in which one can use saving to help realize a given
Horioka and Niimi (2017) and Niimi and Horioka (2019) point out that the rate of wealthdecumulation of the retired elderly in Japan is slower than one might expect but show that this canbe explained by the presence of precautionary saving and bequest motives, especially the former.
See Ventura and Horioka (2020) for a similar analysis of the determinants of the saving behavior of
the retired elderly in Italy.
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motive. The first way is to rely on one’s own assets, and in the case of this way, one
accumulates the financial assets needed to realize the motive in question beforehand anddraws down those assets in order to realize that motive. The other way is to rely on
borrowing, and in this case, one borrows the funds needed to realize the motive inquestion, uses those funds to realize that motive, and repays the loan little by little after
realizing the motive (note that loan repayments (repayment of the principal only) are aform of saving). What should be noted is that the saving is done before the realizationof the motive when one relies on one’s own wealth and that it is done after the realizationof the motive when one relies on borrowing．
The gross saving and dissaving for a given motive in the case of the two financing
methods are shown in Table 2, and as can be seen from this table, the gross saving for agiven motive equals the sum of saving in the form of the accumulation of financial assets
and saving in the form of loan repayments. Similarly, dissaving for a given motive equals
dissaving in the form of the decumulation of financial assets and dissaving in the formof new borrowings.3 Moreover, as noted earlier, net saving for a given motive equals
gross saving for that motive minus dissaving for that motive.
The former Institute of Posts and Telecommunications Policy of the former Ministry of
Posts and Telecommunications of the Japanese Government conducted a number ofsurveys of household saving behavior including the “Survey of the Financial Asset
Choice of Households,” which was conducted in Japan every two years, and the “U.S.Japan Comparison Survey of Saving,” which was conducted simultaneously in the
United States and Japan in 1996. Both of these surveys are unique in asking respondents
to provide information on the amount of saving, dissaving, new borrowings, and loan
repayments for each motive. Horioka and Watanabe (1997, 1998) and Horioka, et al.
(1998, 2000) use the methodology described above in conjunction with data from the1994 “Survey of the Financial Asset Choice of Households” and the 1996 “U.S.-Japan
Comparison Survey of Saving,” respectively, to calculate the contribution of saving foreach motive to aggregate household saving (see Horioka (1985) for an analysis of savingfor one’s children’s educational expenses, Horioka (1987) and Grossbard (2015) for ananalysis of saving for one’s children’s marriage expenses, Horioka (1988) for an analysis
of saving for housing purchase, and Horioka and Okui (1999) for an analysis of saving
for retirement).4

The only exception to this rule is in the case of the housing purchase. A household purchasing
housing will decumulate financial assets in order to pay for the down payment and will incur new
borrowings (a mortgage) to pay for the remainder of the cost of the house, but dissaving in these twoforms will be exactly offset by saving in the form of the accumulation of real assets (viz., housing).
Thus, no dissaving will occur at the time of housing purchase, but dissaving will occur after thepurchase of the house in the form of depreciation.
3

4 It should be noted that saving for the various motives are often interrelated. For example, as notedby Wei and Zhang (2011), Du and Wei (2013), and Horioka and Terada-Hagiwara (2017), themarriage and housing motives are closely related in China and the Republic of Korea because it iscommon practice in these countries for parents with sons to buy housing for their sons in preparation
for their marriage.
9

Table 3 shows data from Horioka and Watanabe (1997, 1998) and Horioka, et al. (1998,
2000) on the contribution of net saving for each motive to total household saving fromthe two aforementioned surveys. If the selfish life-cycle model applies, individuals
should be saving primarily for the retirement motive, and as this table shows, net saving
for the retirement motive accounts for a full 62.23-62.50% and 30.84% of total
household saving in Japan and the United States, respectively, and that it is by far thedominant component of household saving in both countries. Thus, the selfish life-cycle
model seems to apply in both countries. However, the share of retirement-related saving
in Japan is more than twice what it is in the United States, which suggests that the selfish
life-cycle model applies to a much greater extent in Japan than it does in the UnitedStates.5
If the simplest version of the selfish life-cycle model applies, individuals should notleave a bequest to their children and should therefore not be saving in order to leave abequest to them. As can be seen from Table 3, the share of net saving for the bequest
motive is 1.50-3.23% in Japan and 5.04% in the United States, and thus its share is low
in both countries but especially in Japan. Thus, our findings concerning saving for thebequest motive also suggest that the selfish life-cycle model applies in both Japan andthe United States but that it is especially applicable in the case of Japan.6
A closely related paper is Gourinchas and Parker (2002), which analyzes how the
proportions of precautionary saving (buffer saving) and retirement saving (life-cycle
saving) evolve over the life cycle using data for the United States and finds that
precautionary saving decreases sharply with age whereas retirement saving increases
sharply with age and that precautionary saving comprises the lion’s share of the target
level of liquid wealth until about the age of 40.
Another closely related paper is Schunk (2009), which uses micro data from the SAVE
data set to analyze motives for saving in Germany. Schunk (2009) finds that the mostimportant motive for saving in Germany is the precautionary motive, with 62% of
respondents feeling that this motive is “very important,” followed by the old-age
provision motive (59%), the motive to purchase a house (36%), and the bequest motive(20%). Horioka, et al. (1998, 2000) presents roughly comparable data on the proportionof respondents saving for each motive, and they find that the most important motive isthe retirement motive in both the United States and Japan, with 48.6% and 45.2% of
respondents saving for this motive in the two countries, respectively, and that the bequest
The second most important saving motive is the precautionary motive in both countries. Readers
may be confused about why the share of net saving for housing purchase is negative in Japan. The
reason is that dissaving for housing purchase is greater in absolute value than gross saving for
housing purchase in Japan and the reason for this, in turn, is that housing is less durable in Japan due
to differences in construction materials and thus that the depreciation of housing is greater in Japan.
5Note, however, that saving for one’s children’s education and marriage expenses also involve
intergenerational transfers and that the share of net saving for these two motives is much higher inJapan than in the United States (16.08-16.45% vs. 2.73%). Thus, the share of net saving involving
intergenerational transfers is also much higher in Japan than in the United States (17.58-19.68% vs.
7.77%).
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motive is far less important, with only 10.8% and 3.6% of respondents saving for thismotive in the two countries, respectively. Thus, the retirement motive is much more
important than the bequest motive in all three countries, but the ratio between the two is
lowest in Germany (59% vs. 20%), intermediate in the United States (48.6% vs. 10.8%),
and highest in Japan (45.2% vs. 3.6%).
Yet another closely related paper is Yao, et al. (2011), which compares saving motives
in China and the United States. Unfortunately, they do not consider saving for thebequest motive, but they find that saving for the retirement motive is more important for
Chinese households than for American households in the lower income quantiles andthat saving for the education motive is more important for Chinese households than for
American households in all income quantiles. These results suggest that Chinesehouseholds are more similar to Japanese households than to American households interms of the relative importance of saving for the retirement (and education) motives.
Yet another closely related paper about China is Chao, et al. (2011), which finds that thelife-cycle hypothesis can explain only 35% of the surge in Chinese household saving butthat by adding to the model the strong motivation of young adults for buying a home andthe financial support they receive from their parent for that purpose, their model can
reproduce the high and increasing level of household saving since the mid-nineties.
Finally, Birkeland (2013) analyzes the saving motives of Dutch households and findsthat saving for the precautionary motive is the most important motive for Dutchhouseholds, that saving for the retirement motive is the second most important motive,
and that the inter vivos transfer motive and the bequest motive are less important.
To summarize, our findings concerning saving motives suggest that the selfish life-cycle
model applies in all countries but that it applies to a greater extent in Japan (and perhaps
also in China and the Netherlands) than it does in the United States and Germany.
6. Evidence on the Prevalence of Bequests
The simplest version of the selfish life-cycle model assumes that individuals do not leave
any bequests or other intergenerational transfers to their children so we can shed lighton the applicability of the selfish life-cycle model by looking at the prevalence ofbequests and other intergenerational transfers. In this section, we survey the literatureon the prevalence of bequests and other intergenerational transfers in Japan and othercountries and consider whether or not the findings are consistent with the selfish lifecycle model.
The most commonly used measure of the importance of bequests and otherintergenerational transfers is the share of such transfers in total household wealth. Thismeasure was first used by Kotlikoff and Summers (1981), and they obtained theshocking result that the share of intergenerational transfers in total household wealthamounts to a full 46 to 81 percent. Subsequently, many researchers have calculated thisshare using a variety of methodologies and data sources for a large number of countries.
11Davies and Shorrocks (2000) survey this literature and conclude that the majority ofstudies find that this share is 35 to 45% in the United States, roughly comparable to theUnited States in Canada, and somewhat higher in France.
Moreover, a number of researchers have tried to calculate the share of intergenerationaltransfers in total household wealth for the case of Japan. For example, Hayashi (1986)
estimates this share to be at least 9%, Dekle (1989) estimates it to be 3-49%, Barthold
and Ito (1992) estimate it to be at most 25-40%, Campbell (1997) estimates it to be 2328%, and Horioka (2008b,c and 2009) estimates it to be 15-18%. Thus, this shareappears to be lower in Japan than it is in the United States and other countries, whichsuggests that bequests and other intergenerational transfers are less important
quantitatively in Japan than they are in other countries. Thus, the findings concerning
the quantitative importance of bequests also suggest that the selfish life-cycle model
applies to a greater extent in Japan than it does in other countries.
Another approach for gauging the importance of bequests and other intergenerationaltransfers is to look not at the amounts of bequests actually left behind but to ask
individuals about their bequest intentions. Osaka University has been conducting ahousehold survey called the “Preference Parameters Study” in four countries (China,
India, Japan, and the United States) since 2003, and fortunately, this survey contains
several questions about bequests. The bequest data from this survey are analyzed indetail in Horioka (2014a,b), and as can be seen from these papers, the proportion of
respondents planning to leave a bequest to their children is by far the highest in India(87.05%), also relatively high in the United States (60.77%) and China (56.35%), andby far the lowest in Japan (31.44%). These findings reinforce our earlier conclusion thatbequests are less prevalent in Japan than in other countries and that the selfish life-cycle
model applies to a greater extent in Japan than it does in other countries. However, weshould note that there is substantial heterogeneity in all countries and that, even in Japan,
a substantial minority of households (nearly one-third) plan to leave bequests.
7. Evidence on Bequest Motives
In the previous section, we presented our findings concerning the prevalence of bequests
and other intergenerational transfers and concluded that they are less prevalent in Japan
than in other countries. However, even if the selfish life-cycle model applies, individuals
may still leave bequests and other intergenerational transfers to their children, and thus,
even if we find that individuals do leave bequests and other intergenerational transfers
to their children, we cannot make a determination about the applicability of the selfish
life-cycle model unless we know the reasons for which individuals leave bequests andother intergenerational transfers to their children. Thus, in this section, we present
evidence on the motives for which individuals leave bequests and other intergenerationaltransfers to their children in Japan and three other countries and consider whether or not
the findings are consistent with the selfish life-cycle model.
If individuals are selfish, as assumed by the life-cycle model, they should either leave
no bequests at all, leave only accidental or unintentional bequests arising from lifespan12

uncertainty, or selfish motivated bequests (see Arrondel and Masson (2006) and
Laferrère and Wolff (2006)). One example of a selfishly motivated bequest is thestrategic (or exchange) bequest motive proposed by Bernheim, Shleifer, and Summers(1985), whereby parents leave a bequest to their children to induce them to provide care,attention, and/or financial assistance during old age (see also Grossbard, 2014). Anotherexample of a selfishly motivated bequest is the implicit intra-family annuity contract
proposed by Kotlikoff and Spivak (1981) whereby parents agree to leave a bequest to
their children in return for receiving a monthly stipend from them until they die. By
contrast, altruistic parents will leave a bequest to their children unconditionally (i.e.,
whether or not their children provide anything in return). Thus, we can shed light on theapplicability of the selfish life-cycle model by looking at data on bequest motives.
The “Preference Parameters Study” of Osaka University that we referred to in theprevious section collects information on bequest motives in four countries (China, India,
Japan, and the United States). The survey asks “How do you feel about leaving an
inheritance to your children?” and respondents are asked to select one of eight options.
Two of the eight options (“I plan to leave an inheritance to my child(ren) no matter what”
and “I do not plan to leave an inheritance to my child(ren) under any circumstances
because doing so may reduce their will to work”) are altruistic, while four (“I plan toleave an inheritance to my child(ren) only if they provide care (including nursing care)during old age,” “I plan to leave an inheritance to my child(ren) only if they provide
financial assistance during old age,” “I do not plan to make special efforts to leave an
inheritance to my child(ren) but will leave whatever is left over,” and “I do not plan toleave an inheritance to my child(ren) under any circumstances because I want to use mywealth myself”) are selfish.
Horioka (2014a,b) presents data on bequest motives from this survey for China, India,
Japan, and the United States, and as can be seen from these papers, the proportion of
respondents with an altruistic bequest motive is highest in India (75.80%) and also very
high in the United States (66.97%), whereas this proportion is lowest in Japan (33.98%)
and also relatively low in China (37.40%). By contrast, the proportion of respondents
with a selfish bequest motive is highest in Japan (64.96%) and also relatively high in
China (55.10%), whereas this proportion of lowest in India (21.82%) and also relatively
low in the United States (32.76%). Thus, judging from the evidence on bequest motives,
the Japanese are the most selfish among the four peoples and the Chinese are the next
most selfish, whereas Indians are the most altruistic and Americans are the next mostaltruistic.
Moreover, as the data presented in Horioka (2014a) show, data on bequest division point
to the same conclusion (i.e., that the Japanese are the most selfish and the Chinese thesecond most selfish). However, in the case of bequest division, Americans and Indianschange positions, with Americans being the most altruistic and Indians being the second
most altruistic.
Horioka, et al., (1998), Horioka, et al. (2000), Horioka (2002a,b), Horioka (2008b,c),and Horioka (2009) present similar data on bequest motives and bequest division fromother surveys and obtain broadly consistent results.
13

Finally, Alma’amun (2012) analyzes the bequest motives of Malaysian Muslims andfinds that the bequest motives of Malaysian Muslims are largely altruistic (where theresponses “To make them equally well off” and “To help them regardless of theireconomic status” are classified as altruistic), whereas dynastic and selfish (strategic)
bequest motives are of roughly equal importance. 7
Thus, not only do the Japanese leave fewer bequests than other peoples but their bequests
are more selfishly motivated that those of other peoples. These findings suggest that theselfish life-cycle model applies to a much greater extent in Japan than it does in othercountries.
8. Evidence from Tests of Altruism
The simplest version of the selfish life-cycle model assumes that individuals are selfish,
not altruistic, so we can shed light on the applicability of this model by conducting testsof altruism. Thus, in this section, we survey papers that have conducted tests of altruism
for the case of Japan and consider whether or not their findings are consistent with theselfish life-cycle model.
First, we survey the literature that examines the impact of parental bequest motives on
the caregiving behavior of children. If children are altruistic, they should provide care,attention, and financial assistance to their parents regardless of whether or not they
expect to receive bequests from them. Conversely, if children are selfish, they should
provide care, attention, and financial assistance to their parents only if they expect toreceive bequests from them (Bernheim, Shleifer, and Summers’s (1985) strategic
bequest motive).
All such studies for Japan of which I am aware are consistent with the selfish life-cycle
model rather than with the altruism model. For example,(1)

Ohtake and Horioka (1994) find that the housing assets of parents have apositive and statistically significant impact on the probability that theirchildren live with them and that the financial net worth of parents has apositive and statistically significant impact on the amount of the financial
assistance children provide to their parents.

(2)

Komamura (1994) finds that the housing assets of parents have a positive andstatistically significant impact on the probability that their children live with
them.

(3)

Yamada (2006) finds that whether or not children expect to inherit a house

Alma’amun (2012) analyzes the motives for leaving bequests to family members who are excluded
by Faraid (Islamic law) because the distribution of bequests among legal heirs is specified in detailin the Quran and Muslims have no discretion regarding this matter.
14
7

from their parents has a positive and statistically significant impact on theprobability that their children live with them and on the frequency with which
their children contact them and a negative and statistically significant impact
on the distance between their own home and their children’s home.
(4)

Wakabayashi and Horioka (2009) find that whether or not parents aremanagers or homeowners has a positive and statistically significant impact on
the probability that their children live with them.

(5)

Kohara and Ohtake (2011) find that the educational attainment of parents has
a positive and statistically significant impact on the probability that theirchildren take care of them during old age.

(6)

Horioka, et al. (2018) find that whether or not children expect to receive abequest from their parents has a positive and statistically significant impact on
the probability that they live with or near their parents and on the probability
that they help their parents with housework.

If parental assets, homeownership, occupation, and educational attainment are regarded
as proxies for expected bequests from parents, all of the aforementioned findings suggestthat the probability receiving bequests from parents and/or the expected amount of suchbequests have a positive and statistically significant impact on the probability of parents
living with, or near, their children and on the probability of receiving care, attention,
and/or financial assistance from their children. This, in turn, suggests that the Japaneseare selfish, not altruistic.
The seminal study on the impact of bequests on the amount of care and attention fromone’s children is Bernheim et al. (1985), which finds, using data on American households
from the Longitudinal Retirement History Survey (LRHS), that bequeathable wealth has
a positive and significant impact on the frequency of phone calls and visits from one’s
children in the case of families with two or more children, even after controlling for theparents’ age, health, and employment status, but that it has a negative and insignificant
impact on the frequency of phone calls and visits in the case of families with only one
child and that non-bequeathable wealth does not have a significant impact on thefrequency of phone calls and visits in either sample. All of these results appear to support
the selfish life-cycle model because only bequeathable wealth should influence thebehavior of children and because parents’ threat of disinheritance is not credible if they
have only one child.
However, Perozek (1998) replicates Bernheim et al. (1985) test using a richer data set[the 1987 National Survey of Families and Households (NSFH)] and finds thatbequeathable wealth no longer has a significant impact on attention from one’s children
when additional child and family characteristics are taken into account and/ or a morecomprehensive measure of attention is used.
15

Laferrère and Wolff (2006) survey the literature from throughout the world on the impactof parental bequests on children’s caregiving behavior. They find that such research is
the most prevalent in the United States and that two-thirds of such studies for the UnitedStates suggest that Americans are altruistic (see also Horioka (2014a)). Thus, ourfindings in this section are consistent with our earlier conclusion in section 7 that theJapanese are more selfish than Americans.
As for studies for countries other than the United States, Laferrère and Wolff (2006) also
survey studies for France, Germany, and Italy and finds that most studies for France
reject altruism while two out of the three studies for Germany accept altruism, and thestudies for Italy are inconclusive.
Finally, there are at least three studies of bequest division behavior—one for Japan, one
for China, and one for Tanzania. Hamaaki, et al. (2019) analyze the determinants ofbequest division behavior in Japan using micro data from a unique survey and find thatparents tend to bequeath more to children who are living with the surviving parent,
which is consistent with the selfish life-cycle model, but that they do not necessarily
bequeath more to economically disadvantaged children, which is evidence against thealtruism model.
Turning to studies for other countries, Jiang, et al. (2015) analyzes the bequest division
behavior of rural households in China and find that they have mixed motives, with thelikelihood of leaving bequests and the amount of the bequest being lower for children
providing financial support but higher for children providing instrumental (in-kind)
support. The first finding is consistent with the altruism model since children who
provide financial support are presumably more affluent, but the second finding is
consistent with the selfish life-cycle model.
Similarly, Wineman and Liverpool-Tasie (2019) analyze the bequest division behaviorof rural households in Tanzania and find strong evidence in support of the selfish lifecycle model. For example, they find that parents with greater needs leave more to female
children who reside nearby because they are more willing and able to provide attention
and care to them and that they leave more to children who remit money or in-kind gifts.
Moreover, they find little evidence in support of the altruism model: they find thatparents do not favor children who are divorced or widowed (who are presumably more
needy) and that they do not disfavor children with off-farm income.
Thus, tests of altruism that are based on examining the interrelationship between parental
bequest motives, bequest division, and the caregiving behavior of children indicate thepresence of considerable heterogeneity across countries, and France and Tanzania seemto be two of the few countries other than Japan in which the findings are consistent withthe selfish life-cycle model.
Moreover, Hayashi (1995) conducts a completely different test of altruism using micro
data from the “National Survey of Family Income and Expenditure.” If parents andchildren are both altruistic, the two sides should pool their incomes when deciding how
much to consume, and thus if one controls for the combined income of parents and16children, parental income or children’s income should not have any impact on total
consumption. However, Hayashi (1995) finds, even after controlling for combined
income by introducing fixed effects, that parental income and children’s income have astatistically significant impact on total consumption. This suggests that the Japanese are
not pure altruists.
Thus, all of the tests of altruism surveyed here suggest that Japanese individuals are
selfish, not altruistic, and that the selfish life-cycle model applies in Japan to a greater
extent than it does in the United States and other countries with the possible exceptionof France and Tanzania.
9. Evidence on the Importance of Borrowing (Liquidity) Constraints
In our brief exposition of the selfish life-cycle model in section 2, we assumed that
individuals smooth their consumption over their lifetimes, but this result requires that
capital markets are perfect and that borrowing (liquidity) constraints do not exist. Thus,
we can shed light on the applicability of the selfish life-cycle model by looking at how
important borrowing (liquidity) constraints are in the real world. In this section, wesurvey the literature on the importance of borrowing (liquidity) constraints in the caseof Japan and consider whether or not the findings are consistent with the selfish lifecycle model (see Hayashi, 1985b, for a more general survey of this literature).
Hayashi (1985a) and Watanabe, Watanabe, and Watanabe (2001) find that about 15%
and 25% of Japanese households face borrowing (liquidity) constraints, respectively.
Similarly, Kohara and Horioka (2006) find that 8 to 15% of young Japanese couples areborrowing (liquidity) constrained. Moreover, Horioka (2012a, b) and Horioka and Niimi(2020) find that the ratio of household liabilities to household disposable income inJapan was the highest among the Group of Seven (G7) countries until at least 2005.
Thus, all of the existing evidence suggests that most Japanese households are notborrowing (liquidity) constrained, that borrowing constraints do not constrain them fromsmoothing consumption over their lifetimes, and that the selfish life-cycle model applies
in the case of Japan.8 This conclusion is surprising at first glance because it is wellknown that, during the high-growth era from the mid-1950s until the early 1970s, theJapanese government funneled capital from households to firms to enable them tofinance massive amounts of investment in plant and equipment and that consumer credit
was largely unavailable. It must be borne in mind, however, that after economic growthslowed, loans to households for housing and automobile purchases and other purposes
expanded rapidly (see, for example, Horioka and Niimi (2020, 2021).

However, Ogawa (2007) finds that the proportion of households facing borrowing (liquidity)
constraints has increased sharply since the mid-1990s.
178

10. Why Is There More Consistent Support for the Selfish Life-Cycle Model inJapan?
The overall conclusion of this paper is that the selfish life-cycle model applies in all
countries but that it is more applicable in Japan than it is in the United States and mostother countries. This finding suggests at first glance that the Japanese are inherently(genetically) more rational, forward-looking, and selfish than other peoples, as these are
the fundamental assumptions of the selfish life-cycle model, but this is not necessarily
the case. In this section, we explore possible explanations for why there is moreconsistent support for the selfish life-cycle model in Japan than there is in most othercountries. At least eleven possible explanations come to mind, and we group them bycategory into government policies, institutional factors, economic factors, demographic
factors, and cultural factors.
GOVERNMENT POLICIES
10.1. Underdeveloped Social Insurance System
Japan had an underdeveloped social insurance system for much of the postwar system,with the public old-age pension system being expanded only in 1973 and the public longterm care insurance system being introduced only in 2000. Moreover, the public old-age
pension system has been scaled back in recent years, with the pensionable age being
gradually increased from 60 to 65, contribution rates being gradually increased, andbenefit levels being held down. Moreover, further reductions in benefit levels are likely
as further population aging places further strains on the finances of the public old-age
pension system. This means that a larger share of living expenses during retirement
needs to be financed by one’s own assets in Japan, which in turn increases the need tosave for life-cycle purposes (i.e. for living expenses during retirement). Thus, it could
be that Japan’s underdeveloped social insurance system is one explanation for the greater
importance of saving for retirement in Japan.
10.2. High Inheritance Taxes
Estate, bequest, or inheritance taxes are much higher in Japan than in other countries.
For example, the maximum tax rate of the inheritance tax was already high (50%) but it
was increased further to 55% in 2015, and there is also a comparable gift tax that islevied on inter vivos transfers. By contrast, there is no inheritance tax at all in China andthe threshold for taxable bequests is very high in the United States, as a result of which
only the very wealthy are required to pay inheritance taxes in the United States. Thus, it
could be that higher inheritance taxes are one explanation for why bequests are lessprevalent in Japan than in other countries.
10.3. Relatively Early Retirement Age
Japan has traditionally had a surprising early retirement age, although it has been
gradually extended over time. During most of the postwar period, the compulsory
18

retirement age in Japan was only 55, which is much earlier than other developed
countries. In 1986, the Japanese government amended the Act on Stabilization of
Employment of Elderly Persons to provide various incentives for companies to raise
their compulsory retirement age to 60. In 1994, the Act was further amended to legallyprohibit companies from setting a compulsory retirement age below 60 beginning in
1998, and to require companies to strive to secure employment opportunities for theiremployees until the age of 65 beginning in 2000. In 2004, the Act was further amended
to require companies with a compulsory retirement age of less than 65 to graduallyprovide employment opportunities for all interested employees until the age of 65
beginning in 2006, and in 2012, the Act was further amended to require companies toprovide employment opportunities for all interested employees until the age of 65
beginning in 2013, either by (a) raising the compulsory retirement age, (b) introducing
a continued employment system whereby employees are re-hired on a contractual basis,or (c) abolishing their compulsory retirement age entirely. Note, moreover, that eventhough Japan’s compulsory retirement age has been raised over time, a compulsory
retirement age of 65 has not yet been fully implemented, and even a compulsory
retirement age of 65 is early by international standards (for example, the United States
has completely abolished compulsory retirement for almost all occupations). A relatively
early retirement age implies a relatively long retirement span, ceteris paribus, and ourtheoretical analysis in section 2 showed that a longer retirement span necessitates morelife-cycle saving (saving for retirement). Thus, it could be that the relatively early
retirement age in Japan is one explanation for the greater importance of saving for
retirement in Japan.9
INSTITUTIONAL FACTORS
10.4. The Underdeveloped Financial System
Japan has traditionally had a relatively underdeveloped financial system. For example,
in Japan, lifetime annuities, long-term care insurance, and reverse mortgages are notprovided by the private sector to the same extent as they are in other developed countries(see Horioka and Kanda, 2010, for more details). Private annuities are widely available
but many, if not most, of them provide for benefits only up to a certain age, meaning thatthey do not provide full insurance against longevity risk. This makes it necessary forJapanese households to self-insure against medical and long-term care expenses during
retirement and against lifespan uncertainty, assuming that social insurance systems do
not fully insure Japanese households against such risks, and this could be one
explanation for the greater importance of life-cycle saving (saving for retirement) inJapan.

Note, however, that even though the compulsory retirement age in Japan is relatively early, many
Japanese workers continue working after formal retirement (usually at greatly reduced wages) andthat self-employed workers are not bound by the compulsory retirement age.
19
9

10.5. Unavailability of Nursing Homes and Professional Care Workers
Nursing homes and professional care workers were, until recently, less available in Japan,
meaning that parents had little choice but to rely on their children for care and assistanceduring old age, and this could be one explanation for why selfishly motivated strategic
bequest motives are more prevalent in Japan than elsewhere. Note, however, that this
explanation no longer applies because the supply of nursing homes and professional care
workers has increased substantially in recent years and because Japan introduced apublic long-term care insurance program in 2000.
ECONOMIC FACTORS
10.6. Rapid Economic Growth
As we discussed briefly in section 2, the selfish life-cycle model predicts that theaggregate amount of life-cycle saving (saving for retirement) will be greater, the greater
is the extent to which the lifetime incomes of workers exceeds the lifetime incomes ofretirees because the aggregate amount of saving for retirement equals the saving for
retirement of workers (which is presumably a function of their lifetime incomes) minus
the dissaving for retirement of retirees (which is also presumably a function of their
lifetime incomes). Thus, it could be that the rapid growth of household incomes during
the high-growth era from the mid-1950s until the early 1970s is one explanation for thegreater importance of saving for retirement in Japan during this period.
Similarly, we would expect bequests to be smaller, the greater is the extent to which the
lifetime incomes of the children’s generation exceeds the lifetime incomes of the parents’generation because the faster the growth of household incomes, the less willing evenaltruistic parents will be to leave bequests to their children, who are more affluent thanthey are. Thus, it could be that the rapid growth of household incomes during the highgrowth era from the mid-1950s until the early 1970s is also one explanation for the lower
prevalence of bequests in Japan during this period.
However, neither of these explanations applies any longer since economic growth inJapan has been stagnant for the past two decades or more.
DEMOGRAPHIC FACTORS
10.7. The Young Age Structure of the Population
As we showed in section 2, the selfish life-cycle model predicts that the aggregate
amount of saving for retirement will be greater, the higher is the ratio of the retirementage population to the working-age population because workers are saving for retirement
whereas retirees are dissaving for the same purpose. Moreover, as we pointed out in
subsection 3.1, the ratio of the retirement-age population to the working-age populationin Japan was one of the lowest among the developed countries until the mid-1980s. Thus,20

it could be that the unique age structure of Japan’s population is one explanation for thegreater importance of life-cycle saving (saving for retirement), at least until the mid1980s. However, this explanation no longer applies since Japan is now virtually the mostaged society in the world.
10.8. Long Life Expectancy
Life expectancy at birth in Japan has in recent years been virtually the longest in theworld. For example, in 2019, it was 87.45 for females and 81.41 for males. The life
expectancy of females was second only to Hong Kong, and that of males was the third
highest in the world after Hong Kong and Switzerland (Asahi Shimbun, July 31, 2020).
Thus, even assuming a retirement age of 65, the expected retirement span of Japanese
females is 22.45 years and that of Japanese males is 16.41 years, and moreover, we need
to bear in mind that the compulsory retirement age was only 60 until recently, meaningthat the expected retirement span was even longer until recently. Our theoretical analysis
in section 2 showed that a longer retirement span necessitates more life-cycle saving(saving for retirement), and thus it could be that the relatively long life expectancy atbirth in Japan, which entails a longer retirement span, is one explanation for the greater
importance of saving for retirement in Japan.
CULTURAL FACTORS
10.9. Weak Religiosity
As the data presented in Horioka (2014a) show, the Japanese are much less religious
than Americans and Indians. If weaker religiosity makes people less altruistic, it may atleast partly explain the lower prevalence of altruistically motivated bequests in Japan
than in the United States and India. There is a vast literature on the impact of religiosity
and religious affiliation on people’s economic attitudes and outcomes starting with Max
Weber’s 1905 treatise on the Protestant ethic (Weber, 1905/2002) (see Guiso, et al.
(2003), and McCleary and Barro (2006) for comprehensive surveys of this literature).
For example, Barro and McCleary (2002) find that the extent of religious beliefs has apositive impact on economic growth. Similarly, Guiso, et al. (2003) conduct a careful
econometric analysis of the impact of religiosity and religious affiliation on economic
attitudes using data from the World Values Survey for a large number of countries andfind that religious respondents differ significantly in their economic attitudes from nonreligious people (for example, they place greater emphasis on thrift), even after
controlling for individual country effects.
10.10. Social Norms concerning Parental Care
Perhaps reflecting Confucian teachings concerning the importance of filial piety, thesocial norm in Japan has traditionally been for children (especially sons) to take care of
their elderly parents, and this could be a partial explanation for why selfishly motivated21

strategic bequest motives are more prevalent in Japan than in other countries. 10 By
contrast, in countries where this social norm is not as strong (for example, the UnitedStates), children will be less willing to take care of their elderly parents and hence there
will be less scope for parents to induce their children to provide care by dangling a
potential bequest in front of them.11
10.11. Social Norms concerning Children’s Education and Marriage Expenses
The social norm in Japan is for parents to pay the bulk of their children’s education andmarriage expenses, and this could be one explanation for why Japanese parents are notable to leave as large a bequest to their children as parents in other countries. 12
10.12. Summary
In this section, we identified a large number of not only cultural factors but also
government policies, institutional factors, economic factors, and demographic factorsthat are capable of explaining why there is more consistent support for the selfish lifecycle model in Japan than there is in other countries. Thus, the fact that there is moreconsistent support for the selfish life-cycle model in Japan does not necessarily imply
that the Japanese are inherently (genetically) more rational, forward-looking, and selfish
than other peoples. Rather, it could be that there is more consistent support for the selfish
life-cycle model in Japan because of various differences in government policies,
institutional factors, economic factors, and demographic factors. Thus, it is notnecessarily surprising that the selfish life-cycle model applies with greater force in a
non-Western country like Japan with very different traditions, social norms, and culture
and closer family ties, and this finding can potentially be explained without relying on
cultural or even genetic explanations (we will say more about this in the concluding
section). However, an assessment of the relative importance of the various explanations
for why there is more consistent support for the selfish life-cycle model in Japan thanthere is in most other countries remains as a topic for further research.
11. Conclusion and Policy Implications
In this paper, we first provided a brief exposition of the simplest version of the selfish
life cycle model or hypothesis, which, together with the dynasty or altruism model, isundoubtedly the most widely used theoretical model of household behavior in
Grossbard (2018) suggests that social norms regarding parental care may be influenced by theprevalence of dowries and brideprice.
10

See Banerjee, et al. (2014) for an interesting analysis of how the social norm of children(especially sons) taking care of their parents has affected China’s household saving rate.
11

Note, however, that parental assistance with children’s education and marriage expenses is a formof intergenerational transfer and that, strictly speaking, it should be included in the share of bequests
broadly defined in total household wealth (see footnote 5).
2212

economics. We then surveyed the literature on household saving behavior in Japan (withemphasis on the author’s own past research) to shed light on whether or not the selfish
life-cycle model applies in the case of Japan. In particular, we surveyed the literature ona wide variety of approaches including not only studies of saving behavior (e.g., studiesof the impact of the age structure of the population on the saving rate, the saving
behavior of the retired elderly, saving motives, and the importance of borrowing(liquidity) constraints) but also studies of bequest behavior (e.g., studies of theprevalence of bequests, bequest motives, and tests of altruism). Almost all of theavailable evidence suggested that the selfish life-cycle model applies to at least someextent in all countries but that there is more consistent support for this model in Japan
than there is in the United States and other countries. Thus, the answer to the question
posed in the title of this paper is an unqualified “yes.”
Needless to say, selfish behavior and altruistic behavior coexist in all countries, andJapan is no exception. Fumio Hayashi, the foremost authority on Japanese saving
behavior, concludes his survey paper on this topic as follows (Hayashi (1997a), p. 322):“We can now profitably contemplate what sort of model is best suited for explaining
these stylized facts [about Japanese household saving behavior]. It has become clear thatintergenerational linkages through the exchange of nonmarket services and throughaltruism will be an essential ingredient.”
Moreover, Hayashi makes the following assertion elsewhere in the same paper(Hayashi(1997a), p. 319): “[b]oth the exchange and altruistic motives are important for
explaining [Japanese household saving behavior].”The current author agrees completely with Hayashi but strongly feels that selfish
behavior is more prevalent in Japan than altruistic behavior and that there is moreconsistent support for the selfish life-cycle model in Japan than there is in the UnitedStates and other countries.
This paper then explored possible explanations for why there is more consistent support
for the selfish life-cycle model in Japan than there is in other countries, attributing thisfinding to government policies, institutional factors, economic factors, demographic
factors, and cultural factors.
Some readers may be surprised to learn that there is more consistent support for theselfish life-cycle model in Japan than there is in the United States and other countries
because Japan is a non-Western country with very different traditions, social norms, andinstitutions and closer family ties. However, it must be borne in mind that the fact thatfamily ties are close does not necessarily imply that family members harbor feelings ofaltruism toward one another. It could be that family ties are closer in Japan than in mostother countries but that they are motivated by strategic rather than altruistic
considerations (see Horioka (2019) for a more extensive discussion of the impact of
culture on the saving and bequest behavior of the Japanese). Moreover, there are a large
number of other differences between Japan and other countries with respect togovernment policies, institutional factors, economic factors, and demographic factors
23that are capable of explaining the greater applicability of the selfish life-cycle model inthe case of Japan without having to resort to cultural or even genetic explanations.
Note, moreover, that even if social norms were a partial explanation for the greaterapplicability of the selfish life-cycle model in the case of Japan, it should be noted thatsocial norms are not immutable and that they are shaped by the policy, institutional,
economic, and demographic environment of the country. For example, the social normof children taking care of their elderly parents may have arisen partly because of theunavailability of nursing homes and professional care workers and the absence of apublic long-term care insurance program and it may now be weakening partly inresponse to the increased supply of nursing homes and professional care workers andthe introduction of a public long-term care program in 2000 (see Horioka (2019) for amore detailed discussion of this argument).
Finally, we would like to consider the implications of our finding that the selfish lifecycle model applies in the case of Japan. This conclusion has at least five important
implications for economic modeling and for government tax and expenditure policies:(1)

When constructing theoretical models to describe Japanese householdbehavior, one should construct models that assume that households are selfish
rather than altruistic or models that assume that selfish households andaltruistic households coexist.

(2)

As population aging progresses even further in Japan, Japan’s householdsaving rate can be expected to decline ever further. This is likely to lead to
substantial capital shortages, which in turn may necessitate fiscal
reconstruction measures designed to reduce the large deficits (negative saving)of the government sector and may also lead to Japan running current accountdeficits rather than current account surpluses.

(3)

Our finding implies that Ricardian equivalence does not apply in the case ofJapan, meaning that the Japanese Government may be able to stimulate theeconomy by implementing tax cuts that are financed by the issuance ofgovernment bonds (Barro, 1974), but it is, of course, possible that suchpolicies would not be effective even if Ricardian equivalence does not apply.

(4)

Our finding that bequests are motivated primarily by strategic or exchange
considerations in Japan implies that they are accompanied by some sort of quid
pro quo such as care, attention, and financial assistance during old age. This,in turn, implies that, in Japan, bequests from parents to children will be largely
offset by transfers in the opposite direction (from children to parents), meaningthat net transfers from parents to children will not necessarily be large or evenpositive and that wealth disparities will not necessarily be transmitted fromgeneration to generation (from parents to children).13

However, Niimi and Horioka (2018) find that individuals receiving bequests are more likely toleave bequests, which suggests that there is a danger than wealth disparities will be passed on from
24
13

(5)

Our finding that bequests are motivated primarily by strategic or exchange
considerations in Japan implies that the introduction of a public long-term careinsurance system in 2000 may have led to a reduction in the prevalence ofbequests because parents no longer need to rely on their children for careduring old age to the same extent as in the past.

Thus, whether or not the selfish life-cycle model applies in the case of Japan is important
not only from an intellectual perspective but also from a policy perspective, and thus
further work on this topic is of urgent need. I am therefore planning to continue myresearch on this topic as I enter the retirement phase of my own life cycle.
In the case of Japan, randomized controlled trials (RCTs) have not been widely used instudies of household consumption, saving, and bequest behavior. This is a promisingavenue for further research, but as Ravallion (2020) has pointed out, this methodology
is not necessarily the best methodology in all cases, and it should be used only if it is thebest methodology for the question at hand. As Ravallion writes, “The gold standard is
the best method for the question at hand.”Given that the Covid-19 pandemic is the most pressing issue currently facing the world
economy, I would like to close this article by speculating about how the pandemic willalter the extent to which the selfish life-cycle model applies in the case of Japan andother countries. First, the pandemic and the policies implemented to counteract the
pandemic have caused many people to be laid off, to lose their jobs entirely, and/or tosuffer sharp drops in their income. This has forced many of them to finance their living
expenses by drawing down their previously accumulated wealth and will reduce theamount of wealth that they can accumulate for their retirement years, but it will also
reduce the amount of wealth they can leave to their children in the form of inter vivos
transfers and bequests.
Second, until the pandemic subsides, children will presumably become less likely to live
with, and/or to provide care to, their parents in order to avoid infecting them with thevirus, and this may cause the selfish strategic bequest motive and thence the selfish lifecycle model to become less applicable.
Thus, it is clear that the pandemic will have a pervasive impact on people’s economic
behavior, but it is not clear whether it will cause the selfish life-cycle model to become
more or less applicable, on balance.
Acknowledgements
This paper is based in large part on my keynote lecture at the Annual Meeting of theSociety of Economics of the Household (SEHO), my keynote lecture at the International

parents to children.
25

Conference on Business, Economics and Finance, School of Business and Economics,
Universiti Brunei Darussalam, Brunei, my invited lecture at the Singapore Economic
Review Conference (SERC), my invited lecture at the Kyoto University Faculty of
Economics 100th Anniversary International Conference, my lecture in the “Inequality
and …? Lecture Series” at the European Investment Bank (Luxembourg), my special
lecture at the Autumn Meeting of the Japanese Economic Association (JEA), my webinar
at Xavier University Bhubaneswar (India), and Horioka (2020). I am grateful to Yuichi
Abiko, Conchita d’Ambrosio, Kazuo Ogawa, Ryosuke Okamoto, Shovan Ray, Etsuro
Shioji, Takashi Unayama, and other participants of these conferences, especially
Shoshana Grossbard, Yoko Niimi, and three anonymous referees for their valuablecomments. This work was supported by JSPS (Japan Society for the Promotion of
Science) KAKENHI Grant Numbers 18H00870, 20H01513, and 15H05728.

26

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Figure 1: The Selfish Life-Cycle Model
Consumption,
IncomeY
Cumulative saving during working years
C
Cumulating(dis)saving during
retirement years
R

0

L

Age

Table 1: A Decomposition of the Private Saving Rate Gap between Japan and OtherCountries
Gap between
U.S.-Japan
Japan and
Factorgap
OECD-wide
average
The contribution of a high income growth rate
+0.45
+0.47
The contribution of a low retirement-age population ratio
+5.45
+6.90
The contribution of a low dependent-age population ratio

+1.64

+1.07

The contribution of a high labor force participation rate of theelderly

-3.94

-3.89

The contribution of a low per capita income level
Subtotal
Unexplained residual

+4.36
+7.96
+2.90

+1.29
+5.85
+0.95

Total private saving rate gap+10.86+6.80

Note: The figures denote the contribution of each factor to the private saving rate gap (inpercentage points).
Source: Horioka (1986, 1989)

34

Figure 2: Trends over Time in Japan’s Household Saving Rate, 1955-2018
25.0
20.0
15.0
10.0
5.0

68SNA(1990)

93SNA(2000)

2018

2015

2012

2009

2006

2003

2000

1997

1994

1991

1988

1985

1982

1979

1976

1973

1970

1967

1964

1961

1958

-5.0

1955

0.0

08SNA(2011)

Note: This figure shows trends over time in the household saving rate, which isdefined as household saving as a share of household disposable income (inpercent).
Source: Economic and Social Research Institute, Cabinet Office, Government ofJapan, “Annual Report on National Accounts,” various issues.

Table 2: Saving for Specific Motives
Financing method
Own wealthBorrowing

Gross saving
Accumulation of financial
assetsLoan repayments

35

Dissaving
Decumulation of financial
assetsNew borrowing

Table 3: A U.S.-Japan Comparison of the Share of Net Saving for Each Motive
Saving Motive

Japan (1994)

Japan (1996)

U.S. (1996)

Retirement
Precautionary
Children's education

62.50
55.99
8.93

62.23
41.18
8.77

30.84
27.93
-0.14

Children's marriage
Housing purchase
Consumer durable purchases

7.52-20.21-3.75

7.31-15.57
1.54

2.87
14.60
4.20

LeisurePayment of taxes
Independent business

-0.44
-1.54
0.10

2.44
0.25
-0.37

6.35
6.40
2.59

Bequests
3.23
1.50
5.04
Other
-12.33
-9.29
-0.66
Total
100.00100.00100.00Note: The figures denote the share of net saving for each motive in total household saving(in percent). The figure for "Precautionary" denotes the sum of the figures for "Illness" and"Peace of mind."
Sources: Horioka (1998, 1999) and Horioka, et al. (1998, 2000).

36