Horioka Bequests

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Horioka Bequests

  1. 1. BEQUEST MOTIVES AND PARENT-CHILD RELATIONS IN THE U S JAPAN ANDIN THE U.S., JAPAN, AND CHINACHINA CHARLES YUJI HORIOKA Institute of Social and Ec. Research Osaka UniversityOsaka University March 2009 1
  2. 2. The Purpose of This PresentationThe Purpose of This Presentation Th f thi t ti i t tThe purpose of this presentation is to present a variety of data and results on altruism, bequest motives, bequest division, and parent-childmotives, bequest division, and parent child relations in the United States, Japan, and China for two reasons: (1) In order to shed light on which theoretical model of household behavior applies in the three countries andcountries and (2) In order to shed light on whether different models of household behavior apply in the threemodels of household behavior apply in the three countries. 2
  3. 3. Theoretical Models of Household Behavior (1) (1) The selfish life cycle model Assumes that individuals care only abouty themselves (2) The altruism model(2) The altruism model Assumes that individuals harbor intergenerational altruism toward their childrenaltruism toward their children 3
  4. 4. Theoretical Models of Household Behavior (2) (3) The dynasty model Assumes that individuals care about the perpetuation of the family line and/or the family business. (4) Social norms and traditions Assumes that individuals behave in accordanceAssumes that individuals behave in accordance with social norms and traditions even if it is not rational to do sorational to do so. 4
  5. 5. f fImplications of Each Model for Bequest Motives BequestBequest Motives, Bequest Division, and Parent-Child Relations Each of these models of household behavior has different implications for bequesthas different implications for bequest motives, bequest division, and parent-child relationsrelations. 5
  6. 6. (1) The Selfish Life Cycle Model(1) The Selfish Life Cycle Model B t ti L b t lBequest motive: Leave no bequests, leave only unintended bequests arising from lifespan uncertainty, and/or leave bequests only if one’s children provide care and/or financial support during old age. Bequest division: Leave more or all to the child who provides more care and/orchild who provides more care and/or financial support during old age. 6
  7. 7. (2) The Altruism Model(2) The Altruism Model Bequest motive: Leave bequests even if one’s children do not provide care and/orp financial support during old age and do not carry on the family line and/or the familycarry on the family line and/or the family business. Bequest division: Divide equally or leave more or all to the child who has greaterg needs and/or less earnings capacity. 7
  8. 8. (3) The Dynasty Model(3) The Dynasty Model Bequest motive: Leave bequests only if one’s children carry on the family liney y and/or the family business. Bequest division: Leave more or all to theBequest division: Leave more or all to the child who carries on the family line and/or fthe family business. 8
  9. 9. (4) Social norms & traditions(4) Social norms & traditions Bequest motive: Leave the entire bequest to the eldest son because this is the social norm in Japan. Similarly, the eldest son (and his wife) take care of his parents(and his wife) take care of his parents because this is the social norm in Japan. SBequest division: See above. 9
  10. 10. Thus, each theoretical model of household behavior has very difficult implications fory p bequest motives and bequest division, and thus we can shed light on whichthus we can shed light on which theoretical model of household behavior applies in the real world by looking atapplies in the real world by looking at individuals’ bequest motives and bequest division. 10
  11. 11. Data SourcesData Sources I will present data from a number of surveys for which I was the principal investigator orp p g co-investigator. 11
  12. 12. Data Source (1)Data Source (1) The “U.S.-Japan Comparison Survey of Saving (Chochiku ni kansuru Nichibeig ( Hikaku Chousa),” conducted in the United States and Japan in 1996 by the formerStates and Japan in 1996 by the former Institute of Posts and Telecommunications of the former Japanese Ministry of Postsof the former Japanese Ministry of Posts and Telecommunications 12
  13. 13. Data Source (2)Data Source (2) The “Survey on Preferences toward, and Satisfaction with, Life (Kurashi no Konomi, ( to Manzokudo ni tsuite no Anke-to),” conducted annually since 2005 in Japanconducted annually since 2005 in Japan, annually since 2006 in the United States, and also in China and India by the Twentyand also in China and India by the Twenty- first Century and Global Center of Excellence (COE) Programs at Osaka University 13 y
  14. 14. Data Source (3)Data Source (3) The “Parent-Child Survey (Oyako Chousa),” conducted in the United States and Japanp in 2006 by the Twenty-first Century Center of Excellence Program at Osakaof Excellence Program at Osaka University as a supplement to the “Survey on Preferences toward and Satisfactionon Preferences toward, and Satisfaction with, Life” 14
  15. 15. Data Source (4)Data Source (4) The “Survey on Intra-Household Distribution and Inter-generational Transfers (Setai-naig ( Bunpai/Sedai-kan Iten ni kansuru Kenkyuu Chousa) ” conducted in Japan in 2006 byChousa), conducted in Japan in 2006 by the Institute for Research on Household Economics (Kakei Keizai Kenkyuu sho)Economics (Kakei Keizai Kenkyuu-sho) 15
  16. 16. (1) Data on Altruism(1) Data on Altruism • Americans and the Japanese are roughly equal in the prevalence of altruism towardq p family members but Americans are far more altruistic toward charitiesmore altruistic toward charities. • The Chinese are less altruistic toward f ffamily members but far more altruistic toward charities. 16
  17. 17. INTERNATIONAL COMPARISON OF ALTRUISM TOWARDS PARENTS 70.0 50.0 60.0 40.0 20.0 30.0 10.0 0.0 Percent willing to give at least 10% to their parents 63.2 61.4 46.6 U.S. Japan China 17
  18. 18. INTERNATIONAL COMPARISON OF ALTRUISM TOWARDS CHILDRENINTERNATIONAL COMPARISON OF ALTRUISM TOWARDS CHILDREN 70.0 50.0 60.0 40.0 20.0 30.0 10.0 0.0 Percent willing to give at least 10% to their children 59.7 61.1 U.S. Japan 18
  19. 19. INTERNATIONAL COMPARISON OF ALTRUISM TOWARD CHARITIES (NO MATCHING) 60.0 50.0 30.0 40.0 20.0 10.0 0.0 Percent willing to give at least 10% to charities 14.0 4.3 53.6 U.S. Japan China 19
  20. 20. INTERNATIONAL COMPARISON OF ALTRUISM TOWARD CHARITIES (WITH MATCHING)INTERNATIONAL COMPARISON OF ALTRUISM TOWARD CHARITIES (WITH MATCHING) 16 0 18.0 14.0 16.0 10.0 12.0 6.0 8.0 2.0 4.0 0.0 Percent willing to give at least 10% to charities (matching) 15.8 5.4 U.S. Japan 20
  21. 21. (2) Data on the Strength of(2) Data on the Strength of Bequest Motives • Bequest motives are by far the strongest in China, second strongest in the United States, and weakest in Japan., p 21
  22. 22. INTERNATIONAL COMPARISON OF THE STRENGTH OF BEQUEST MOTIVESINTERNATIONAL COMPARISON OF THE STRENGTH OF BEQUEST MOTIVES 70 50 60 40 20 30 10 20 0 Percent wanting to leave a bequest to their children 44.71 18.09 59.26 U.S. Japan China 22
  23. 23. U S JAPAN COMPARISON OF THE STRENGTH OF BEQUEST MOTIVES (1996)U.S.-JAPAN COMPARISON OF THE STRENGTH OF BEQUEST MOTIVES (1996) 120.00 100.00 60.00 80.00 40.00 20.00 0.00 U.S. 45.94 51.13 97.07 2.93 Japan 25.67 69.33 95.00 5.00 Intended bequests Unintended bequests Bequests No bequests 23
  24. 24. (3) Data on the Nature of Bequest(3) Data on the Nature of Bequest Motives • Bequest motives are far more altruistic in the United States than they are in Japan. 24
  25. 25. U.S.-JAPAN COMPARISON OF THE NATURE OF BEQUEST MOTIVES (1996) 80.00 60.00 70.00 40.00 50.00 30.00 40.00 10.00 20.00 0.00 U.S. 3.40 51.13 2.93 42.53 Japan 6.39 69.33 5.00 19.28 Conditional on care Accidental only No bequest Unconditional 25
  26. 26. U.S.-JAPAN COMPARISON OF THE NATURE OF BEQUEST MOTIVES (1996) 80 90 60 70 40 50 30 40 10 20 0 U.S. 57.47 42.53 Japan 80.72 19.28 Selfish life cycle model Altruism model 26
  27. 27. (4) Data on Bequest Division(4) Data on Bequest Division • Bequest division is far more altruistic in the United States than it is in Japan.p 27
  28. 28. U.S.-JAPAN COMPARISON OF BEQUEST DIVISION (1996)Q ( ) 80.00 90.00 60.00 70.00 40.00 50.00 20 00 30.00 40.00 0 00 10.00 20.00 0.00 U.S. 2.93 3.09 84.10 0.41 0.41 2.16 6.90 Japan 5.00 29.21 44.17 1.75 5.73 7.71 6.43 No bequests More to child who provides care Divide equally More to child with less income More to child who takes over the family business More to eldest child even if he/she doesn't Other 28
  29. 29. U S JAPAN COMPARISON OF BEQUEST DIVISION (1996)U.S.-JAPAN COMPARISON OF BEQUEST DIVISION (1996) 80 00 90.00 70.00 80.00 50.00 60.00 30.00 40.00 10.00 20.00 0.00 U.S. 6.02 84.51 2.57 Japan 34.21 45.92 13.44 Selfish life cycle model Altruism model Dynasty model 29
  30. 30. (5) Data on the Impact of Parental( ) p Bequest Motives on Children’s B h iBehavior • Parental bequest motives have a far• Parental bequest motives have a far stronger impact on children’s behavior in Japan that they do in the United StatesJapan that they do in the United States, suggesting that not only parents but also children are more selfish (less altruistic) inchildren are more selfish (less altruistic) in Japan. 30
  31. 31. IMPACT OF PARENTAL BEQUEST MOTIVES ON CORESIDENCE (U.S.)Q ( ) 14.00 10.00 12.00 8.00 4 00 6.00 2.00 4.00 0.00 coresidence rate 6.67 7.53 12.02 7.69 10.05 bequest conditional on care unconditional bequest unintentional bequests only no bequests overall 31
  32. 32. IMPACT OF PARENTAL BEQUEST MOTIVES ON CORESIDENCE (JAPAN) 70.00 50.00 60.00 40.00 20.00 30.00 10.00 20.00 0.00 coresidence rate 63.89 63.46 49.45 25.00 49.70 bequest conditional on care unconditional bequest unintentional bequests only no bequests overall 32
  33. 33. IMPACT OF WIFE'S PARENTS' BEQUEST MOTIVES ON CHILDREN'S BEHAVIOR 100 70 80 90 50 60 70 30 40 50 10 20 30 0 Bequest expect's 52.85 90.18 22.48 No bequest expect's 50.21 79.59 8.03 Financial support Care Coresidence 33 No bequest expects
  34. 34. IMPACT OF HUSBAND'S PARENTS' BEQUEST MOTIVES ON CHILDREN'S BEHAVIORIMPACT OF HUSBAND S PARENTS BEQUEST MOTIVES ON CHILDREN S BEHAVIOR 90 100 70 80 50 60 20 30 40 0 10 20 Fi i l t C C id Bequest expect's 58.45 90.76 46.17 No bequest expect's 50.99 70.64 19.79 Financial support Care Coresidence 34
  35. 35. Wakabayashi & Horioka (2007)(1)Wakabayashi & Horioka (2007)(1) This paper analyzes the determinants of theThis paper analyzes the determinants of the living arrangements (coresidence behavior) of elderly parents and theirbehavior) of elderly parents and their children (whether elderly parents live with their children and if so with which child) intheir children, and if so, with which child) in Japan using micro data from the 1998 “National Family Survey ” In so doing weNational Family Survey. In so doing, we try to shed light on which theoretical model of household behavior applies in Japanof household behavior applies in Japan. 35
  36. 36. Wakabayashi & Horioka (2007)(2)Wakabayashi & Horioka (2007)(2) This paper makes at least two originalThis paper makes at least two original contributions: (1)It is the first to take account of sibling(1)It is the first to take account of sibling composition. (2)It is the first to conduct an explicit test of the importance of social norms and traditions. 36
  37. 37. Wakabayashi & Horioka (2007)(3)Wakabayashi & Horioka (2007)(3) Principal findings (1):Principal findings (1): (1)Parents who were (relatively wealthy) executives before retirement are moreexecutives before retirement are more likely to live with their children. (2)Parents who are homeowners are more likely to live with their children. (3)Parents are more likely to live with less educated children.educated children. Consistent with the selfish life cycle model (or the altruism model) 37 (or the altruism model)
  38. 38. Wakabayashi & Horioka (2007)(4)Wakabayashi & Horioka (2007)(4) Principal findings (2):Principal findings (2): (4) Parents who were self-employed before retirement are more likely to live with theirretirement are more likely to live with their children. (5) Parents are less likely to live with sons who adopt their wife’s surname. (6) Parents are more likely to live with daughters whose husbands adopt theirdaughters whose husbands adopt their surname. Consistent with the dynasty model 38 Consistent with the dynasty model.
  39. 39. Wakabayashi & Horioka (2007)(5)Wakabayashi & Horioka (2007)(5) Principal findings (3):Principal findings (3): (7) Parental attitudes toward parent-child relations affect their coresidence behaviorrelations affect their coresidence behavior. (8) Parents are more likely to live with their eldest child if their eldest child is a son. (9) Parents are most likely to live with their(9) Parents are most likely to live with their eldest son even if he is not the eldest child. Consistent with social norms andConsistent with social norms and traditions. 39
  40. 40. Wakabayashi & Horioka (2007)(6)Wakabayashi & Horioka (2007)(6) • Thus our findings concerning theThus, our findings concerning the determinants of the living arrangements (coresidence behavior) of elderly parents(coresidence behavior) of elderly parents and their children are consistent with all four theoretical models of householdfour theoretical models of household behavior, especially the selfish life cycle model and the dynasty model both ofmodel and the dynasty model, both of which presuppose selfish behavior, and with social norms and traditionswith social norms and traditions. 40
  41. 41. Overall Conclusions (1)Overall Conclusions (1) • Americans are more altruistic toward both family members as well as charities than the Japanese. • The altruism model is far more applicable in the United States than it is in Japan, whereas the selfish life cycle model is far more applicable in Japan than it is in the United States. • The dynasty model is of limited applicability in both countries but more applicable in Japan thanboth countries but more applicable in Japan than it is in the United States. 41
  42. 42. Overall Conclusions (2)Overall Conclusions (2) • Children provide more care to their parents inp p Japan than they do in the United States but their behavior is motivated by selfishtheir behavior is motivated by selfish considerations—that is, care of parents by children is motivated by a desire to receive achildren is motivated by a desire to receive a bequest and conversely (a la the strategic bequest motive of Bernheim Shleifer andbequest motive of Bernheim, Shleifer and Summers (1985)). • Thus, the greater incidence of care of parents by children in Japan is consistent with the great- 42 er prevalence of the selfish life cycle model).
  43. 43. Overall Conclusion (3)Overall Conclusion (3) • The Chinese are NOT altruistic toward parents but ARE altruistic toward childrenp and charities. Why??? 43
  44. 44. Directions for Future ResearchDirections for Future Research • What are the causes of the considerableWhat are the causes of the considerable cross-country differences in the degree of altruism?altruism? • Are they due to differences in genes?y g • Are they due to differences in culture? A th d t diff i li i it ?• Are they due to differences in religiosity? • Are they do to differences in tax systemsy y (for example, tax breaks for charitable contributions)? 44 contributions)?
  45. 45. Policy Implications (1)Policy Implications (1) • The fact that the Japanese are selfish implies that Ricardian equivalence willp q NOT hold and that tax cuts financed by the issuance of government bonds WILL beissuance of government bonds WILL be effective as an economic stimulus, and conversely for Americansconversely for Americans. 45
  46. 46. Policy Implications (2)Policy Implications (2) • The fact that the Japanese are selfish implies that wealth inequalities will NOT bep q passed on from generation to generation because people will either not leave anybecause people will either not leave any bequest at all or will leave bequests only if there is a quid pro quo meaning that netthere is a quid pro quo, meaning that net intergenerational transfers are negligible, and conversely for Americans. 46
  47. 47. Thank you very much for your tt ti !!attention!! 47

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