Silviase/jgov_v1.4_full_ann huggingface dataset:
relatively generous tax treatment of inter vivos gifts is a key reason why they are widely used in the United States. $ ^{9} $

Intergenerational transfers through will substitutes also appear to enjoy several tax advantages in the United States. For example, one of the most tax-efficient vehicles for transferring assets to descendants is a grantor retained annuity trust (GRAT). A GRAT is an irrevocable trust designed to transfer the future appreciation of the trust assets to family members (such as the grantor’s children). A grantor transfers a portion of his/her property into a GRAT in return for a stream of annuity payments for a fixed number of years. During the term of the GRAT, the grantor receives back the full value of his/her initial contribution plus statutory interest in the form of annuity payments. If the value of the annuity payments is equal to the funds transferred into the trust, plus applicable statutory interest, no gift tax will be due when the GRAT is created. Any funds remaining in the trust upon expiration of the annuity term passes to beneficiaries at no additional gift tax cost. This implies that any capital appreciation of the trust in excess of the applicable statutory rate is transferred to the beneficiaries with no additional gift tax, probably promoting wide use of GRATs as a will substitutes in the United States.

### 2.3 Family system

Another aspect that is bound to play a role in the contrasting bequest patterns is the family system in Japan. The Japanese traditional family system, called ‘ie,’ dating back to the Edo period (1603–1868) became legally enshrined during the Meiji period (1868–1912) through the formulation of civil law. The traditional family system is characterized by the following two aspects: (i) strong patriarchal control, and (ii) inequality among family members. Essentially, this implies that the paternal head of the household wields authority over all other family members and that males are treated more favorably than females. For example, Meiji civil law distinguished between inheritances of the family estate following the death of the household head (katoku souzoku) and inheritances following the death of other family members involving assets other than the family estate (isan souzoku). In the former case, the eldest son was designated as the only statutory heir of the family estate, $ ^{10} $ while in the latter case, assets were divided equally among children. $ ^{11} $

Following the major revision of civil law in 1947, from a legal perspective all family
members are now treated equally (in the division of inheritances) regardless of sex and age. However, many of the cultural and social norms of the traditional family system still remain in contemporary Japan, such as the prevalence of the co-residence of parent(s) and their adult children. For instance, according to the International Comparison Survey of the Daily Life and Attitudes of Elderly Persons (Koreisha no Seikatsu to Ishiki ni kansuru Kokusai-hikaku Chousa, various years) conducted by the Cabinet Office, the elderly in Japan are more likely to live with their grown-up children – typically the eldest son and his family – than the elderly in Western countries such as the United States and Sweden. Although the traditional family system and the cultural and social norms associated with it are gradually weakening, they still shape the values of many families in Japan, which, in turn, is bound to effect parental bequest motives and observed patterns of bequest division in Japan.

### 2.4 A hypothetical explanation for the contrasting patterns

Given the institutional differences between Japan and the United States outlined above, we can form a hypothetical explanation of the contrasting patterns of intra-family bequest division between the United States and Japan.

Following Bernheim and Severinov (2003), we assume that, for certain reasons, parents (both in the United States and Japan) often prefer to divide their assets unequally among their children, but do not want their children (as well as third parties) to know this. The way parents aim to achieve this is not through a will, since this would not keep any unequal treatment secret. This is where parents in the United States and Japan act differently. In the United States, gifts and will substitutes provide tax advantages, so that these are likely to be chosen to transfer assets to a particular child or particular children. In contrast, in Japan, high taxes on gifts act as a disincentive for inter-vivos transfers, so that a larger share of the deceased's assets are transferred through (unequal) bequests. Moreover, as unequal bequests are still accepted as the traditional norm by family members, i.e., both inheriting children as well as parents, inheritances in Japan are often allocated unevenly among children (through family negotiations among heirs), reflecting the values shared by the family, which in turn are informed by traditional family values in Japan (including how bequests should be divided among heirs).

Based on this hypothetical explanation, in the following sections we examine the pattern of unequal bequest division in Japan to elucidate parental motives to leave assets to their children.

### 3. Data description

### 3.1 Data source

The microdata used in this paper are taken from the three waves of the “Family and Lifestyle
Survey,” conducted in December 2011 (first wave) and 2012 (second wave) by our research group (see Hori, Iwamoto, Hamaaki, and Murata [2013] and Hori, Iwamoto, Niizeki, Hamaaki, and Murata [2013], for details) and in February 2014 by the Economic and Social Research Institute (third wave). $ ^{12} $ The survey collects information on asset holdings and intergenerational transfers, including inheritances, for individuals in households. The survey asks whether respondents received inter vivos gifts and inheritances from their parents. Furthermore, the survey is particularly notable for the detailed questions it contains intended to throw light on the way how inherited assets are divided among heirs, such as the percentage of inherited assets that individual heirs received (percentage in terms of the total assets left by a deceased parent), whether the deceased parents left a will, and whether they were subject to inheritance taxation.

The subjects of the first survey were the pool of approximately 220,000 consumer testers across Japan who were preregistered by INTAGE Inc., the largest market research firm in Japan. In creating the sample, we divided Japan into 10 areas and chose a total of 4,525 male and female registered testers aged between 25 and 75 to whom to send questionnaires. The respondents (testers) were chosen in such a way that the breakdown by individual area for both sexes resembled that obtained from the Population Census of Japan. In the first wave, we received valid responses from 3,699 participants for a response rate of 81.7%. The subsequent surveys targeted the respondents to the previous survey. We obtained 3,144 valid responses from the 3,647 individuals to whom the questionnaire was sent in the second wave (valid response rate: 86.2%) and 2,357 values responses from the 3,112 individuals to whom it was sent in the third wave (valid response rate: 75.7%).

It should be noted that the average educational attainment of the INTAGE testers was higher and the percentage of single-person households was lower than that in the Population Census. In that sense, the sample, rather than being fully representative of Japan’s population today, can be regarded as being biased towards middle or upper-income households. This point requires due consideration when analyzing the data, but in general the breakdown by sex, area, and age conforms to the distributions observed in the Population Census.

### 3.2 Descriptive statistics

This subsection provides an overview of the descriptive statistics of bequests and respondent characteristics (or characteristics of respondents' spouse). First, we describe the distribution of bequest amounts. Since our survey asks not only about respondents' inheritance events but also their spouse's, we have a maximum of four observations (for each of the four parents) for each household. Overall, there are 5,215 deaths of respondents' and respondents' spouse's parents in
our survey data, and in 1,927 cases the deceased parent left a bequest. Table 1 shows the distribution of bequest amounts. While roughly 56% of respondents received only a small bequest worth less than ¥5 million yen (including those that did not receive any bequest or refused it), about 6% received bequests exceeding ¥30 million yen. From this, it can be inferred that while some respondents received a very large bequest, the majority of respondents inherited only a small amount of assets. This inference is supported by the descriptive statistics of the exact amount of inherited assets shown in Table 2. Because of a small number of outliers – including an extremely large bequest of 3 billion yen – the mean value is very large. However, the median value is only 3.5 million yen.

Second, we compare the share of inheritance events subject to an inheritance tax in our survey with the corresponding share for Japan overall. In our dataset, out of the 5,215 observations of a deceased parent, 227 involved a bequest that was subject to inheritance tax. The share thus is 4.4 percent (=227/5,215). On the other hand, the Ministry of Finance reports that the corresponding value for Japan’s population as a whole is roughly 4 percent on average over the past two decades. $ ^{13} $ Since these two values are very similar, the responses in our survey as well as the sampling scheme appear to be generally reliable.

The characteristics of observations used for our regression analysis (in Section 5) are shown in Table 3. The average age of individuals in the dataset – that is, respondents and their spouses – is 58.9 years. 63 percent of individuals are male. The average number of siblings – that is, respondents plus their brother(s) and sister(s) or respondents' spouse plus their brother(s) and sister(s) – is slightly above three, while almost 40 percent of respondents or their spouses are the eldest son in the family (including only children). 46 percent of individuals are university graduates, while 52 percent are senior high school, junior college, or technical college graduates. The fact that the individuals in our sample appear to be better educated than the population overall probably reflects the fact that, already mentioned, the INTAGE testers are biased towards middle or upper-income households. Meanwhile, about a third of respondents said that the deceased parent had lived with them. Regarding financial assistance between parents and children, 11 percent of respondents indicated that they were providing (or provided) financial assistance to their parents, while 7 percent said that they were receiving (or had received) financial assistance from their parent(s). Finally, the average age of the surviving parent at the time of death of the other parent was about 70 years.

### 4. Empirical strategy

### 4.1 Outline
from the statutory shares.

Figure 1.1(a) shows the statutory share of the surviving spouse in primary inheritances (indicated by the height of the yellow-shaded area) as well as the mean and median values of surviving spouses' actual share (indicated by the solid and dashed lines, respectively) obtained from our micro dataset. Figure 1.1(c) shows the corresponding information (the statutory and actual shares) for children in primary inheritances. The horizontal axis measures the number of children a decedent had (including the respondent or his/her spouse). While the statutory share of the surviving spouse is 50 percent regardless of the number of children, the statutory share of children decreases from 50 percent for an only child to 10 percent in the case where there are five (including the respondent).

The median values of respondents’ (including spouses’) actual shares in primary inheritances reported in Figure 1.1(c) look almost identical to the statutory shares. This suggests that the statutory shares seem to serve as a reference for negotiations amongst heirs. On the other hand, the mean values of respondents’ actual shares appear to deviate upward from the statutory shares, although the mean does decrease as the number of siblings increases. This upward deviation appears to be the other side of the coin of the downward deviation from the statutory share of 50 percent for the surviving parents in Figure 1.1(a). This finding suggests that surviving parent tends to give up part of their statutory share on behalf of their children. A possible explanation is that such behavior reflects altruistic motives in that surviving parents act in consideration of the interests of their child or children. Moreover, there may be cases where a family can reduce the sum total of inheritance taxes falling due in primary and secondary inheritances by “frontloading” the intergenerational asset transfer from parents to children. $ ^{14} $

Figures 1.1(b) and (d) show the mean of the absolute difference between the actual and the statutory share (indicated by the solid line) for surviving spouses and for children respectively, as well as the ratio of respondents (or their spouses) reporting that their bequest share deviated from the statutory share (indicated by the height of the yellow-shaded area). The figures indicate that a non-negligible share of families divide their bequests in a manner that diverges from the statutory shares. More specifically, the ratio of families dividing bequests differently from the statutory shares ranges from about 60 to 80 percent, and the mean deviation from the statutory
share is roughly 20 to 30 percentage points regardless of the number of siblings.

Figures 1.2(a) and (b) are comparable charts for secondary inheritances. The magnitude of the upward deviations of the mean in this case looks somewhat smaller than in the case of primary inheritances (Figure 1.1(c)), and the median looks broadly in line with the statutory shares. $ ^{15} $ Turning to Figure 1.2(b), in roughly 70 percent of families, the actual division of secondary inheritances with multiple heirs (children) deviates from the statutory shares.

We conjecture from the above figures that while statutory shares appear to be treated as an important reference by families in Japan, a sizable portion of families divide their bequests in a manner different from the statutory division (i.e., different from the equal division among children). In order to examine how and why bequests are not divided equally in Japan, we regress the size of deviations from the statutory share on a variety of explanatory variables that proxy for the following five motives: (i) the dynastic (or family line) motive, (ii) the desire to treat children impartially, (iii) altruism toward family members, (iv) the parental strategic (or exchange) motive, and (v) other motives.

### 4.2 Regression specification

We estimate the following equation to examine the determinants of the division of bequests among heirs:

$$ D e v i a t i o n_{i}=\alpha+X_{i}\beta+u_{i} $$

where $ Deviation_{i} $ is the percentage deviation of respondent i's actual share in a bequest from his/her statutory share and is defined as follows:

$$ D e v i a t i o n_{i}=(A c t u a l\;s h a r e_{i}-S t a t u t o r y\;s h a r e_{i})/S t a t u t o r y\;s h a r e_{i} $$

where $ Actual\ share_{i} $ and $ Statutory\ share_{i} $ represent respondent i's actual and statutory shares, respectively. $ X_{i} $ is a vector of respondent (or his/her spouse) i's and his/her parents' characteristics. $ u_{i} $ is an error term that is assumed to be independently and normally distributed with mean zero and covariance $ \sigma^{2} $ . We estimate equation (1) separately for primary and secondary inheritances, since, as explained above, patterns of bequest division are likely to differ
between primary and the secondary inheritances. We use Tobit regression as our primary choice to estimate the model, since $ Deviation_{i} $ is bounded below by -1. While the Tobit estimator handle the bounded nature of the dependent variable well, it may not be consistent if the error term is heteroskedastic or non-normal. Therefore, we also report OLS regression results to confirm the robustness of our results across estimation methods.

Our covariates in the regression can be classified into the following categories corresponding to the types of bequest motives listed above. First, to proxy the dynastic motive, we include the following three variables: (1) a quasi-dummy variable that takes one (minus one) if the respondent is male (female), (2) a dummy variable that takes one if the respondent is the eldest son, and (3) the share of real assets in the total assets that the respondent inherited. The coefficient on the gender quasi-dummy is expected to be positive if males (females) are treated favorably (unfavorably). To gauge the gender effect relative to siblings of the same sex only, we also include a separate dummy (referred to as “siblings dummy” below) that takes one if the respondent has one or more siblings, and intersect our gender quasi-dummy with the siblings dummy $ ^{16} $ as well as with a dummy that takes one if the respondent has a sibling/siblings of the other sex. The coefficient on the eldest son dummy (intersected with the siblings dummy) is also expected to be positive if bequests are distributed disproportionately to the eldest son who takes over as patriarch of the family. Finally, the reason why we include the share of real assets is that an heir who inherited residential assets from a decedent is most likely to be an heir who plays a key role in maintaining the family line. Therefore, if the dynastic motive plays a role in the division of bequests in Japanese households, the coefficient on this real-asset-share variable should also to be positive.

Second, to control for the parental desire to treat children impartially, we include the following two variables: (1) a dummy variable that takes one if the respondent has a higher educational attainment than other siblings, and (2) a dummy variable that takes one if the respondent regularly received financial assistance from his/her parent(s). Some parents may feel happier if they treat all children equally in the sense that all children receive the same amount of intergenerational transfers as a whole (not only through inheritances). With regard to the dummy for those who are better educated than other siblings (intersected with the siblings dummy), we expect the marginal effect of this dummy to be negative if parents consider investment in their children’s human capital (as a form of intergenerational asset transfer) and bequests to be substitute. Similarly, we expect the effect of the dummy for those who received parental financial assistance in the past also to be negative.

Third, we examine altruism toward family members by considering the following three
factors in primary inheritances: (1) a dummy variable that takes one if the respondent reports that he/she is economically better-off than other siblings, (2) the past occupational status of the surviving parent (for the longest job held), and (3) the age of the surviving parent at the time of the primary inheritance. If heirs are altruistic toward other family members, the marginal effect of the first dummy variable (the better-off dummy intersected with the siblings dummy) should be negative. Regarding the past occupational status, we include two separate dummy variables: one that takes one for surviving parents who were self-employed or small business owners, and another one that takes one for surviving parents who worked as an employee. If a surviving parent was self-employed/a small business owner or had a long work history as an employee, he/she was likely to have earned more throughout his/her working life than those in the other categories (e.g., full-time homemakers), and therefore had the opportunity to adequately prepare for retirement through pensions and savings. Consequently, we expect that the past occupational status of the surviving parent will have a positive effect on the deviation of respondents' actual share from the statutory share, since surviving parents with a long work history are more likely to be able to afford handing part of their share to their children. Regarding the age of the surviving parent, we construct the following two dummies: (1) a dummy variable for surviving parents who were between 60 and 74 years of age (at the time of their spouse's death) and (2) a dummy for surviving parents who were 75 years of age or older (at the time of their spouse's death). If one parent died when the other parent was still (relatively) young, the surviving spouse would likely have more years to live and thus probably need more financial resources. Therefore, we expect the dummies for older surviving parents (i.e., those between 60 and 74 as well as those over 74) to be positive, based on the assumption that children take the needs of the surviving parent into account when negotiating the division of the bequest.

Fourth, to investigate parental strategic behavior, we include the following three dummy variables: (1) a dummy for respondents who lived with the decedent, (2) a dummy for respondents who lived with the surviving parent, and (3) a dummy for respondents who regularly provided financial assistance to their parents. We expect that those who live(d) with their parents and/or who provide(d) financial support to their parents are likely to receive more in a primary inheritance if parents behave strategically to encourage children to provide assistance and attention in exchange for a bequest. $ ^{17} $ While we include the same cohabitation and financial assistance dummies also in the secondary inheritance regressions, the coefficients on these