Silviase/jgov_v1.4_full_ann huggingface dataset:
household i divided by $ (T_{i}-S_{i}) $ ^{12} Based on the obtained $ c_{i}^{*} $ and the actual consumption expenditure, $ c_{i}, \phi_{i} = c_{i} / c_{i}^{*} $ can be calculated, where $ \phi_{i} $ represents the discrepancy index between actual consumption expenditure and “optimal” consumption expenditure. In calculating life-cycle wealth, it is further assumed that (i) households continue to receive the same amount as their current pension benefits until they die, (ii) the life expectancy of household i is defined as the average of the life expectancies of the husband and the wife, (iii) housing assets (excluding the value of land) depreciate at the rate given in the statistics by type of housing structure, and (iv) based on the economic situation during 2008-2012, households expect no capital gains or losses on their wealth. $ ^{13} $ Life expectancy is taken from the “Life Tables” published annually by the Ministry of Health, Labour and Welfare, which contain the life expectancy for men and women for each age (from zero to 105 years old).

Figure 4 displays the results. The median of $ \phi_{i} $ is 0.72 for those in their mid-60s, which is substantially less than 1, implying that households will not use up their life-cycle wealth if they die in line with the average life expectancy. Households' consumption level deviates from the optimal level more the older they get and the median of $ \phi_{i} $ is 0.39 for those in their late 70s, implying the elderly tend to dissave even more slowly with age. Possible explanations are that households plan to leave a bequest and/or engage in precautionary saving towards risks such as ill health or longevity.

### 4. Determinants of dissaving by elderly households

### 4.1 Empirical methodology

The next objective of this study is to examine what factors underlie the slow wealth drawdown of the elderly. Although the FIES provides rich information on consumption, income, and assets, it does not contain potentially important variables to understand the behavior of the elderly, such as information on the health of household members, households' detailed family structure (e.g., whether householders have children that live separately), information on intergenerational transfers within the family, households' intention to leave a bequest, and precautionary saving, which are factors that are likely to play an important role in understanding excess saving of the elderly. However, as mentioned earlier, this information is available in JSTAR. Utilizing available data from JSTAR, it is examined how the saving rate is related to the intention to leave a bequest and precautionary saving by estimating a median regression in which other characteristics that may be related to the saving rate are controlled for. Specifically, the
following simple regression is estimated:

$$ SR_{i}=\alpha_{o}+\alpha_{I}BequestDummy_{i}+\alpha_{2}PreSavDummy_{i}+\beta X_{i}+e_{i} $$

where $ SR_{i} $ is the saving rate of respondent i and $ BequestDummy_{i} $ is a dummy variable that equals one if the respondent answered that they plan to leave a bequest. Similarly, $ PreSavDummy_{i} $ is a dummy that equals one if the respondent answered that they have savings for precautionary reasons. Note that no causal relationship between these dummies and the saving rate is assumed in this regression. The primary purpose here is to examine whether the saving rate is higher for those who either plan to leave a bequest and/or engage in precautionary saving, with other characteristics (observable from the JSTAR dataset) controlled for. These controls, represented by $ X_{i} $ , include the age of the household head, the square of the age of the household head, the marital status and educational attainment of the household head, a dummy for home owners, dummies for the employment status of the respondent and the spouse if the respondent is married, which take one if the person is retired and zero if working, the health condition of the respondent and the spouse if the respondent is married, dummies related to family members (i.e., dummies which take one if a respondent has a child/children, has a child/children who are junior high or high school students, has a child/children who are college or university students, and has a child/children who already work), dummies representing if the respondent has received a gift or inheritance in the past and/or expects to do so in the future, and a dummy which takes one if the respondent's or the spouse's parent(s) live(s) with the respondent. Respondents that are neither the household head nor the spouse of the head are dropped from the regressions.

Table 2 shows the basic statistics for the variables used in the regressions. Observations are restricted to respondents who answered all the questions used for the analysis, which left 1,688 observations from the first survey for ten municipalities and 1,260 observations from the second survey for seven municipalities. The average age of the head in the first survey (Wave 1) is 63.7 years, three-quarters of household heads are married, 85 percent have a child/children, and 76 percent have a child or children who are already working. The share of respondents whose parents (or parents in law) live with them is 12 percent. One third of household heads have already retired, and 30 percent have a spouse who is working. Regarding their health, respondents were asked to choose among five categories ranging from 1 (very good) to 5 (very bad). The average value is slightly above the middle of the range (towards the healthy side). 37 percent of respondents answered that they planned to leave a bequest. 31 percent of households replied that they had received a gift or inheritance, while 14 percent of households expected to do so in the future. Households may save less if they received or count
on receiving an inheritance, while they may save more if they plan to leave an inheritance for their children. Three-quarters of respondents said that they had savings to prepare for unforeseen expenses and/or that they felt more secure with savings. The average saving rate of respondents (or couples, if married) was minus 4 percent, with a large standard deviation. The median of the saving rate is positive, which is not surprising, since two-thirds of respondents are not retired. In addition, imputed rents are not included, both in consumption and disposable income, due to a lack of necessary information. The right half of Table 2 presents figures from the second survey (Wave 2), which are currently available for seven municipalities. The question we use for precautionary saving was not asked in Wave 2.

### 4.2 Regression results

Table 3 presents the regression results using cross-section data from the first survey for 10 municipalities, which has a large sample size and asked the question on precautionary saving, which was included only in the first survey. Given the large standard deviation in the saving rate, median regression is used. The results for specification (1) indicate that, as expected, the saving rate is lower if the head is retired, which is consistent with the LC/PIH $ ^{14} $ . In addition, the rate is higher if a respondent is married. The health condition of a respondent has a negative impact on the saving rate, which may be due to higher medical costs and/or lower income caused by illness. The coefficient on the bequest dummy is significant and indicates that households planning to leave a bequest have a 7 percentage point higher saving rate, while the coefficient on the precautionary saving dummy is close to zero and statistically insignificant. The coefficients on the child dummies are not statistically significant, except for the dummy for children that are already working, which is significant at the 10 percent level. There is no significant link between whether the (spouse’s) parents live in the respondent’s household and the saving rate. Turning to the dummies representing whether a household has received an inheritance or expects to receive an inheritance, the results indicate that having received or expecting to receive an inheritance are not relevant to the saving rate. In specifications (2) and (3), to check the robustness of the results, first the dummy representing precautionary saving and then the one representing the desire to leave a bequest are excluded. The coefficient on the bequest dummy remains significantly positive and essentially unchanged, while that on the precautionary saving dummy turns positive, but remains close to zero and insignificant.

Next, Table 4 presents the regression results based on the unbalanced panel data from Waves 1 and 2. The dummy for precautionary saving is omitted, since the question was not
included in Wave 2. The results are essentially the same as those in Table 3. The Breusch–Pagan and Hausman tests support the random effect model, which suggests that if a respondent expects to leave a bequest, the household has a saving rate that is 10 percentage points higher than would otherwise be the case.

### 4.3 Discussion

The results in Tables 3 and 4 indicate that the saving rate of the elderly is considerably pushed up by the desire to leave an inheritance, but not by precautionary saving, which differs from the results obtained by Horioka and Niimi (2017), who highlighted the relative importance of precautionary saving. To examine possible reasons for the different results, a probit regression following their approach was employed by replacing the dependent variable in equation $ [1] $ with a dummy variable which takes one if the saving rate is negative and zero otherwise (Columns (1) and (2) in Appendix Table 2). However, the finding that precautionary saving did not affect the saving rate of the elderly remains unchanged. Further, to take into account the possibility that the saving rate regression may suffer from extreme outliers, such as households with a very low income, the saving rate-to-wealth ratio is used as an alternative dependent variable. Yet, again the coefficient on precautionary saving is not significant (Column (3) in Appendix Table 2).

Two possible explanations why precautionary saving so far is found to be insignificant suggest themselves. First, if individuals perceive uncertainties during their retirement (such as with regard to their income, their health, or other eventualities) to be smaller than during their working life, they may feel less of a need to save additionally for precautionary purposes, since they have already accumulated savings for future contingencies during retirement. As pointed out by Abe and Yamada (2005), if it is assumed that the retired elderly in Japan face less income uncertainty than when they were working, they do not need to suppress consumption for precautionary purposes (i.e., they could consume more), because they face less income risk. Second, as suggested by Dynan et al. (2002, 2004), respondents that plan to leave a bequest and also save for uncertainty in the future may not generally distinguish between assets when saving for these purposes. Their model assumes that people save for life-cycle and precautionary purposes, and bequeath wealth to their offspring when precautionary savings are not used up by contingencies.

To examine the second possible explanation further, the following additional analysis is conducted. First, the ratio of households' consumption level to their expected life-cycle wealth, $ \phi_{i} $ , which was introduced in Section 3.3 (Figure 4), is examined using available data from JSTAR. Since calculating this ratio means that data on household assets are needed, the sample size becomes much smaller than in the case of the saving rate regression. Nevertheless,
using the ratio makes it possible to investigate households’ dissaving behavior taking life-time wealth into account. Table 5 compares $ \phi_{i} $ – the ratio of households’ consumption level to their expected life-cycle wealth introduced in Section 3.3 – based on whether individuals were planning to leave a bequest and/or were engage in precautionary saving. Since JSTAR asks respondents about the pension benefits they and their spouse expected to receive in the future (such as the amount they expect to receive and the age at which they expect to receive them) such information is also used to calculate expected life-time wealth. $ ^{15} $ The results in Table 5(a) show that the median of $ \phi_{i} $ for retired couples with a head aged in their early 60s is 0.51, which is substantially less than 1. It goes up slightly to 0.55 for couples with a head in their late 60s and then declines to 0.45 for couples with a head in their 70s. Thus, although the dataset used in the additional analysis here is different from that used to obtain Figure 4, the results are very similar in that the median of $ \phi_{i} $ is smaller than one and decreases with age.

Next, in Table 5(b) observations are divided by whether a respondent plans to leave a bequest and/or saves for precautionary reasons. The first row shows that the median of $ \phi_{i} $ is 0.45 for respondents who plan to leave a bequest, which is lower than the 0.58 for those that do not plan to leave a bequest. The second and third rows show that the finding that the median of $ \phi_{i} $ is smaller for respondents who plan to leave a bequest does not change even if the observations are further divided into whether or not they have savings for precautionary reasons. However, comparing the two rows shows that the difference is much larger for those that are not saving for precautionary reasons. Focusing on the columns, the first column shows that among respondents who plan to leave a bequest, there is little difference depending on whether respondents engage in precautionary saving or not, while the second column indicates that there is a substantial difference for those that do not plan to leave a bequest. This result suggests that respondents who plan to leave a bequest build up savings to be used for both purposes, that is, to leave a bequest if all goes well and use it for themselves if it does not.

Table 5(b) suggests that dissaving differs depending on whether households were planning to leave a bequest. On the other hand, whether respondents were saving for precautionary purposes differs only between those not planning to leave a bequest. To examine
this further, the following regression is estimated:

$$ \ln(W_{i}/C_{i})=\alpha_{0}+\alpha_{1}BequestDummy_{i}+\alpha_{2}PreSavDummy_{i}+\beta X_{i}+u_{i} $$

where $ (W_{i}/C_{i}) $ is the expected life-time wealth-to-consumption ratio of respondent i, which equals the inverse of $ \phi_{i} $ , and the other variables are the same as those in equation [1]. The observations are restricted to those whose information necessary for the regression is available (295 observations). The results are shown in columns (1) and (2) of Table 6 and indicate that the coefficient on the bequest dummy is positive and statistically significant. In specifications (1) and (3), the coefficient on precautionary saving is positive but not statistically significant. Specifications (4) and (5) present the regression results when the observations are divided by whether respondents are planning to leave a bequest or not. The coefficient on precautionary saving is positive but insignificant for those planning to leave a bequest, while it is positive and significant for those not planning to leave a bequest. The results indicate that, other things being equal, the level of consumption of retired elderly who plan to leave a bequest (for the rest of their lives) is 18 percent lower than that of those not planning to leave a bequest. Among those not planning to leave a bequest, other things being equal, retired elderly saving for precautionary reasons consume 24 percent less than those not saving for precautionary reasons.

### 5. Concluding remarks and remaining issues

In view of the rapid population aging in Japan, and to contribute to the literature on the dissaving behavior of the elderly, this study investigated the behavior of elderly households in Japan utilizing two different microdatasets which have only recently become available. The results obtained in this study can be summarized as follows.

The (dis)saving behavior of the elderly in Japan is broadly consistent with the life-cycle hypothesis in the sense that elderly households dissave after retirement. However, the speed of net worth reduction (dissaving) is slow. It becomes slower the older the household head is. A key factor underlying dissaving at a pace slower than that predicted by the standard LC/PIH appears to be the desire to leave a bequest. On the other hand, precautionary saving may not play a significant role in the slow pace of dissaving by retired elderly except for those who do not expect to leave a bequest.

Japan’s elderly population will continue to increase over the next quarter of a century. Moreover, since the total population will decline, the ratio of the elderly to the total population will continue to increase for an even longer time – the next 50 years or so. This means that, from a policy perspective, it is increasingly important to utilize the resources of the elderly. The results obtained in this study suggest that policies such as a reduction in taxes on inter-vivos
gifts or inheritances may be an effective and desirable step to boost consumption by younger generations, especially younger households that are liquidity constrained. In addition, policies that reduce financial uncertainty for the aged through pension and healthcare measures could be effective in spurring consumption by the elderly, especially those that are not planning to leave a bequest.

This study has shed some light on the factors underlying the slow wealth decumulation (dissaving) of the elderly in Japan, highlighting in particular that the importance of precautionary saving may differ depending on whether they plan to leave a bequest or not. Access to subsequent waves of JSTAR, hopefully in the near future, should allow us to conduct more detailed analyses using more observations especially on assets, including changes in assets of elderly households. In addition, another avenue would be to consider mortality risk and the relative risk aversion of individual households, which can also be addressed with JSTAR. These issues are left for future research.
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