DP2020-14

Does the Selfish Life-Cycle Model
Apply in the Case of Japan?

Charles Yuji HORIOKA

March 31, 2020

Does the Selfish Life-Cycle Model Apply in the Case of Japan?
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)
March 2020
Abstract
In this paper, we first provide a brief exposition of the simplest version of the selfish life
cycle model or hypothesis, which is undoubtedly the most widely used theoretical modelof household behavior in economics, and then survey the literature on household saving
behavior in Japan (with emphasis on the author’s own past research) to shed light onwhether or not the selfish life-cycle model applies in the case of Japan. In particular, wesurvey the literature on the impact of the age structure of the population on the saving
rate, the saving behavior of retired households, saving motives, the prevalence ofbequests, bequest motives, tests of altruism, and the importance of borrowing (liquidity)
constraints and show that almost all of the available evidence suggests that the selfish
life-cycle model applies to a greater extent in Japan than it does in other countries.
Finally, we discuss the policy implications of our findings.
Keywords: Age structure of the population; aged; altruism; bequests; bequest motives;borrowing constraints; consumption; dissaving; elderly; estates; household behavior;
household saving; households; inheritances; intergenerational transfers; Japan; lifecycle hypothesis; life-cycle model; life-cycle theory; liquidity constraints; old age;retirees; saving; saving motives; selfishness
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 undoubtedly the most widely usedtheoretical model of household behavior in economics. Many researchers haveinvestigated whether or not this model applies in the case of Western economies, and thebroad consensus is that it does (see, for example, Modigliani (1975), Deaton (1992,2005), Hayashi (1997b), and Attanasio (1999), and Jappelli and Pistaferri (2017)), butwhether or not it applies in Japan and other non-Western economies with very different
traditions, social norms, and institutions and closer family ties is another question. The
purpose of this paper is to survey the literature on household saving behavior in Japan(with emphasis on the author’s own past research) to shed light on whether or not theselfish life-cycle model applies in the case of Japan. There have been many
comprehensive surveys of the literature on household saving and consumption behavior
in Japan (for example, Hayashi (1986, 1997a), Horioka (1984, 1990, 1993, 2008a), andOgawa and Horioka (1996)), but this paper is unique in that it focuses on the questionof whether or not the selfish life-cycle model applies in the case of Japan.
To preview the main findings of this paper, virtually all of available evidence suggeststhat the selfish life-cycle model applies to a greater extent in Japan than in othercountries. Thus, the answer to the question posed in the title of this paper is an
unqualified “yes.”This paper is organized as follows: I provide a brief exposition of the simplest versionof the selfish life-cycle model in section 2; I 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;
and I summarize my findings and discuss the policy implications thereof in section 10.
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 collaboratorsfor more details, see Modigliani and Brumberg (1954) and Modigliani (1966)). In order
to simplify the model as much as possible, we ignore the childhood years and assume
that individuals graduate from school and start working at age 0 and that they work fromage 0 until age R, earning Y yen each year, part of which they use to finance their current
consumption and part of which they save in preparation for their retirement years. We
further assume that individuals retire at age R, that they finance their living expenses
during retirement by drawing down their previously accumulated savings, 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 no bequests or inter vivos transfers from their parents and leaving
no bequests or inter vivos transfers to their children (see Figure 1).
1

If we assume that the interest rate is zero, these assumptions 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 magnitude but have opposite signs. This confirms that the
lifetime budget constraint of individuals is satisfied. This is the same as saying that thearea of the 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.

2

Next, I wish to derive the saving amount and saving rate of the household sector as awhole. From equations (3) and (5), AS, the aggregate saving of the household sector asa 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 by examining 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 householdsaving 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 (dis)saving of cohortsthat are retired and dissaving. As a result, if the economy is growing, theaggregate saving of the household sector as a whole will be positive, and thehigher is the economic growth rate, the greater will be the aggregate saving of
the household sector as a whole.
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(2)If a public old-age pension system is introduced, there will be less need to savein preparation for one’s retirement years, and thus one would expect the savingof working-age individuals and the (dis)saving of retired individuals to be lessthan in a world with no public old-age pension system (see 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 SavingRate
We showed in the previous section that, 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 a variety of data sources to investigate the impact of the age
structure of the population on the saving rate, and in this section, we survey this body ofwork and consider 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-section data, whilein subsection 3.2, we discuss papers that make use of time-series data.
3.1.

Evidence based on Cross-Country 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 Asian
countries for the 1966-2007 period from Penn World Tables to analyze the determinants4

of 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.
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.
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 sharp upward trend from 1955 until the mid-1970s, peaking at
23.2%, and showed a sharp 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)).
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.

4. Evidence on the Saving Behavior of Retirees
The selfish life-cycle model assumes that working individuals save and that retirees
dissave. Thus, we can shed light on the applicability of the selfish life-cycle model by5examining the saving behavior or retirees. In this section, we survey studies that examine
the saving behavior of retirees and consider whether or not they are consistent with theselfish life-cycle model.
Hayashi, et al. (1988) carefully analyze household-level data from the “National Surveyof Family Income and Expenditure,” which is conducted every five years by theStatistics Bureau of the Japanese Ministry of Internal Affairs and Communications andfind 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
the sample to retired elderly, they are likely to have found that the Japanese elderly start
dissaving at an earlier age.
Horioka (2006, 2010) and Horioka and Niimi (2017) analyze tabulated data on retired
elderly from the “Family Income and Expenditure Survey,” which is conducted by theStatistic Bureau of the Japanese Ministry of Internal Affairs and Communications, andfind that the saving rate of such households has fluctuated in the -40 to -10% range andthat their decumulation rate of financial assets has fluctuated in the 1 to 3% range since
2000. 1 These findings constitute convincing evidence that Japanese retirees are
dissaving and strongly 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)).
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 and consider whether or not the findings
are consistent with the selfish life-cycle model.
Let me first explain the methodology for calculating the amount of saving for eachmotive. If individuals cannot realize a motive with only their current income, they needto 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, the contribution that saving for a given motive makes to aggregate
household saving is net saving for that motive, which can be calculated as gross saving
1

Horioka and Niimi (2017) and Niimi and Horioka (2019) point out that the rate of wealthdecumulation of Japanese retirees is slower than one might expect but show that this can be explainedby the presence of precautionary saving and bequest motives, especially the former. See Ventura andHorioka (2019) for a similar analysis of the determinants of the saving behavior of retirees in Italy.
6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
motive. The first way is to rely on one’s own wealth, 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) are a formof saving). What should be noted is that the saving is done before the realization of the
motive when one relies on one’s own wealth and that it is done after the realization of
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. Moreover, as noted earlier, net saving for a given motive equals
gross saving for that motive minus dissaving for that motive.
In 1996, the former Institute of Posts and Telecommunications Policy of the Japanese
conducted the “U.S.-Japan Comparison Survey of Saving” simultaneously in the UnitedStates and Japan, and this survey collected detailed information on saving, dissaving,new borrowings, and loan repayments for each motive. Horioka, et al. (1998, 2000) use
the data from this survey to calculate the contribute of saving for each motive toaggregate household saving (see Horioka (1988) and Horioka and Watanabe (1997,1998) for a similar analysis using data on Japan from a different source).
Table 3 shows data from Horioka, et al. (1998, 2000) on the contribution of net saving
for each motive to total household saving. 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% 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 greater extent in Japan than it does in the United States.2

2

The second most important saving motive is the precautionary motive in both countries.
7

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. As can be seen from Table 3, the share of net saving for the bequest motive is
1.50% 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 the bequest motive alsosuggest that the selfish life-cycle model applies in both Japan and the United States butthat it is especially applicable in the case of Japan.
To summarize, our findings concerning saving motives also suggest that the selfish lifecycle model applies to a greater extent in Japan than in other countries.
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 transfers. In this section, we survey the literature on the prevalenceof bequests and other transfers and consider whether or not the findings are consistent
with the selfish life-cycle 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 obtain the shocking
result that the share of intergenerational transfers in total household wealth amounts toa full 46 to 81 percent. Subsequently, many researchers have calculated this share using
a variety of methodology and data sources for a large number of countries. Davies andShorrocks (2000) survey this literature and conclude that the majority of studies findthat this share is 35 to 45% in the United States, roughly comparable to the United 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 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 but to ask individuals
about their bequest intentions. Osaka University has been conducting a household survey
called the “Preference Parameters Study” in four countries (China, India, Japan, and theUnited States) since 2003, and fortunately, this survey contains several questions about8bequests. The bequest data from this survey are analyzed in detail in Horioka (2014a,b),
and as can be seen from these papers, the proportion of respondents planning to leave abequest 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%), and by far the lowest in Japan (31.44%).
These findings reinforce our earlier conclusion that bequests are less prevalent in Japan
than in other countries and that the selfish life-cycle model applies to a greater extent inJapan than in other countries.
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 transfers, and thus, even if we find that individuals doleave bequests and other transfers, we cannot make a determination about theapplicability of the selfish life-cycle model unless we know the reasons for which
individuals leave bequests and other transfers. Thus, in this section, we present evidence
on the motives for which individuals leave bequests and other transfers 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 lifespan
uncertainty, or selfish motivated bequests. One example of selfishly motivated bequests
is the strategic (or exchange) bequest motive proposed by Bernheim, Shleifer, andSummers (1985), according to which parents leave a bequest to their children to inducethem to provide care, attention, and/or financial assistance during old age. By contrast,
altruistic parents will leave a bequest to their children unconditionally (i.e., whether or
not their children provide anything in return) (see Arrondel and Masson (2006) and
Laferrère and Wolff (2006)). Thus, we can shed light on the applicability 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,
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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.3
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.
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 strongly suggestthat the selfish life cycle model applies to a greater extent in Japan than in other countries.
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
and consider whether or not their findings are consistent with the selfish life-cycle model.
First, we survey the literature that examines the impact of parental bequest motives on
the 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 toreceive bequests from their parents. Conversely, if children are selfish, they should
provide care, attention, and financial assistance to their children only if they expect toreceive bequests from their parents (Bernheim, Shleifer, and Summers’s (1985) strategic
bequest motive).

3(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 the financial net worth of parents has a positiveand statistically significant impact on the amount of the financial assistancechildren provide to their parents.

(2)

Komamura (1994) finds that the housing assets of parents have a positive and

See Horioka, et al., (1998), Horioka, et al. (2000), Horioka (2002a,b), Horioka (2008b,c), andHorioka (2009) for similar data from other surveys.
10

statistically significant impact on the probability that their children live with
them.
(3)

Yamada (2006) finds that whether or not children expect to inherit a housefrom 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.
Laferrère and Wolff (2006) survey the literature from throughout the world on the impactof parental bequests on children’s behavior. They find that such research is the mostprevalent in the United States and that two-thirds of such studies for the United Statessuggest that Americans are altruistic (see also Horioka (2014a)). Thus, our findings inthis section are consistent with our earlier conclusion in section 7 that the Japanese are
more selfish than Americans.
Moreover, Hayashi (1995) conducts a completely different test of altruism using
Japanese data. If parents and children are both altruistic, the two sides should pool theirincomes when deciding how much to consume, and thus if one controls for the combined
income of parents and children, parental income or children’s income should not have
any impact on total consumption. However, Hayashi (1995) finds, even after controllingfor combined income by introducing fixed effects, that parental income and children’s
income have a statistically significant impact on total consumption. This suggests that
the Japanese are not pure altruists.
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Thus, tests of altruism suggest that Japanese individuals are selfish, not altruistic, andthat the selfish life-cycle model applies in the case of Japan.
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 Japan andconsider whether or not the findings are consistent with the selfish life-cycle model.
Hayashi (1985) 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. Thus, all previous studies suggest most Japanesehouseholds are not borrowing (liquidity) constrained and that the selfish life-cycle model
applies in the case of Japan.4
Moreover, Horioka (2012a, b) and Horioka and Niimi (2020) find that the ratio ofhousehold liabilities to household disposable income in Japan was the highest among
the Group of Seven (G7) countries until at least 2005
All of these findings suggest that borrowing (liquidity) constraints are not so importantin Japan and provide further evidence that the selfish life-cycle model applies in the caseof Japan.
10. 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 is undoubtedly the most widely used theoreticalmodel of household behavior in economics, and then surveyed the literature on
household saving behavior in Japan (with emphasis 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 on the impact of the age structure of the
population on the saving rate, the saving behavior of retired households, saving motives,
the prevalence of bequests, bequest motives, tests of altruism, and the importance ofborrowing (liquidity) constraints and show that almost all of the available evidence
suggests that the selfish life-cycle model applies to a greater extent in Japan than it doesin other countries. Thus, the answer to the question posed in the title of this paper is an
4However, Ogawa (2007) finds that the proportion of households facing borrowing (liquidity)
constraints has increased sharply since the mid-1990s.
12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 the selfish life-cycle
model applies to a considerable extent in the case of Japan.
Some readers may be surprised to learn that the selfish life-cycle model applies to agreater extent in Japan than in the United States and other countries because Japan is a
non-Western country with very different traditions, social norms, and institutions andcloser family ties. However, it must be borne in mind that the fact that family ties areclose does not necessarily imply that family members harbor feelings of altruism toward
one another. It could be that family ties are more extensive than in other countries butthat 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).
Finally, I would like to consider the policy implication of my finding that the selfish lifecycle model applies in the case of Japan. This conclusion has at least five important
implications:(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.

(3)

Ricardian equivalence does not apply in the case of Japan, meaning that theJapanese Government will be able to stimulate the economy by implementing
tax cuts that are financed by the issuance of government bonds (Barro, 1974).
13

(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 bequests in Japan will be largely offset by transfers in the
opposite direction (from children to parents), meaning that net transfers fromparents to children will not necessarily be large or even positive and that
wealth disparities will not necessarily be transmitted from generation to
generation (from parents to children).5(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 lead to a reduction in the prevalence of bequests
because parents will no longer need to rely on their children for care during
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 life cycle.
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
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 special lecture at the Autumn Meeting of the Japanese
Economic Association (JEA), and Horioka (2020). I am grateful to Yuichi Abiko,
Shoshana Grossbard, Kazuo Ogawa, Ryosuke Okamoto, Etsuro Shioji, Takashi
Unayama, and other participants of these conferences, especially Yoko Niimi, for theirvaluable comments. This work was supported by JSPS (Japan Society for the Promotionof Science) KAKENHI Grant Number 18H00870.

5

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 fromparents to children.
14

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19

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
Japan and
U.S.-Japan
FactorOECD-wide
gap
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

+4.36

+1.29

Subtotal

+7.96

+5.85

Unexplained residual
Total private saving rate gap+2.90+10.86

+0.95
+6.80

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

20

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

21

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

U.S.

Retirement
Precautionary

62.23
41.18

30.84
27.93

Children's education
Children's marriage

8.77
7.31

-0.14
2.87

Housing purchase
Consumer durable purchases
Leisure-15.57
1.54
2.44

14.60
4.20
6.35

Payment of taxes
Independent business

0.25
-0.37

6.40
2.59

Bequests
Other

1.50
-9.29

5.04
-0.66

Total

100.00100.00Note: The figures denote the share of net saving for each motive in
total household saving (in percent).
Source: Horioka, et al. (1998) and Horioka, et al. (2000).

22