Intergenerational Transfers and Asset Inequality in Japan: Empirical Evidence from New Survey Data

• Author: Junya Hamaaki,Masahiro Hori,Keiko Murata
• Published date: 01 March 2014
• DOI: http://doi.org/10.1111/asej.12024
• Date: 01 March 2014

Intergenerational Transfers and Asset Inequality

in Japan: Empirical Evidence from New

Survey Data*

Junya Hamaaki, Masahiro Hori and Keiko Murata

Received 10 September 2012; accepted 18 September 2013

This paper quantitatively examines the impact of intergenerational transfers on

asset inequality among Japanese households. We estimate an intergenerational

asset transfer function with various control variables, using a unique micro dataset

taken from a survey conducted by the Economic and Social Research Institute,

Cabinet Office. Employing three different models, a Tobit model, an interval

regression model and an ordered probit model, to ensure that our results are

independent of the specific econometric approach used, we investigate whether

asset transfers received are correlated with households’ financial strength. We

find that higher income households are likely to receive larger asset transfers.

However, the contribution of intergenerational transfers to asset inequality appears

to be small.

Keywords: asset inequality, intergenerational transfers, Japan.

JEL classification codes: D12, D91, E21.

doi: 10.1111/asej.12024

I. Introduction

Growing economic inequality is a major concern in advanced economies around

the world. Japan is no exception, as illustrated by the term kakusa shakai,or

‘unequal society’, which has gained wide currency in recent years. Of course,

economic inequality has many causes, but the intergenerational transfer of assets

is likely one of them. Especially in a country like Japan, characterized by low

*Hamaaki (corresponding author): Graduate School of Economics, Hitotsubashi University,

2-1 Naka, Kunitachi City, Tokyo 186-8603, Japan and Economic and Social Research Institute,

Cabinet Office, Government of Japan, 3-1-1, Kasumigaseki, Chiyoda-ku, Tokyo 100-8970, Japan.

Email: hamaaki@econ.hit-u.ac.jp. Hori: Economic and Social Research Institute, 3-1-1,

Kasumigaseki, Chiyoda-ku, Tokyo 100-8970, Japan and Institute of Economic Research, Hitotsubashi

University, 2-1 Naka, Kunitachi City, Tokyo 186-8603, Japan. Murata: Economic and Social

Research Institute, 3-1-1, Kasumigaseki, Chiyoda-ku, Tokyo 100-8970, Japan and Graduate School of

Social Sciences, Tokyo Metropolitan University, 1-1 Minami-Osawa, Hachioji City, Tokyo 192-0397,

Japan. We are grateful to Kazuyasu Sakamoto, Atsuko Ueda, Midori Wakabayashi, Chie Hanaoka,

Charles Yuji Horioka, Keiko Shimono and Ralph Paprzycki for valuable comments on an earlier draft

of this paper. We would also like to thank Saeko Maeda, Koichiro Iwamoto and other Economic and

Social Research Institute colleagues for their support. We gratefully acknowledge financial support

from the Grants-in-Aid for Scientific Research (C) 24530231 and (A) 23243046 from the Japan

Society for the Promotion of Science (JSPS).

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Asian Economic Journal 2014, Vol. 28 No. 1, 41–62 41

© 2014 The Authors

Asian Economic Journal © 2014 East Asian Economic Association and Wiley Publishing Asia Pty Ltd

economic growth and declining fertility, inherited assets are bound to make up an

increasing share of household assets. This means that if intergenerational trans-

fers are positively correlated with heirs’ financial strength, they are likely to

perpetuate or even increase asset inequality across households and, hence, the

economic gap between wealthier and less well-off households.

Whether asset transfers indeed contribute to asset inequality in Japan has been

the subject of a number of studies. However, these studies have failed to produce

conclusive results. Instead, the findings of studies using aggregate or macro data

appear to substantially depend on the choice of methodology to estimate the

amount of wealth transferred. Studies based on the life cycle saving approach first

applied by Kotlikoff and Summers (1981) have tended to arrive at relatively small

estimates of the ratio of wealth transferred to total household assets in Japan (e.g.

Hayashi, 1986; Dekle, 1989; Campbell, 1997), while studies employing more

direct measures of inherited assets often obtain large estimates (e.g. Barthold and

Itoh, 1992; Asoh, 1998; Shimono and Ishikawa, 2002). Studies using household-

level or other micro data have produced mixed results. While a considerable

number of such studies indicate that asset (as well as educational) transfers have

led to an increase in asset inequality (e.g. Noguchi et al., 1989; Takayama et al.,

1996; Kito et al., 1993; Matsuura, 2006), more recent studies by Horioka (2008,

2009) suggest otherwise.

Although there are likely several reasons for the conflicting results, the most

obvious explanation is that these studies only provide descriptive, rather than

econometric, analyses and, therefore, do not incorporate potentially important

factors such as the level of educational investment and the financial strength of

family members of the preceding generation in examining the dynamics of

inequality through intergenerational transfers.

The purpose of the present paper is to address these shortcomings and empiri-

cally investigate whether individuals with greater financial strength are more

likely to receive intergenerational transfers. If that is the case, asset transfers will

contribute to exacerbating asset inequalities. We investigate the effect of asset

transfers on asset inequalities by estimating the determinants of the amount of

transfers, consisting of gifts and inheritances, using various control variables,

based on a unique set of micro data taken from the ‘Household Survey on Family

Relationships, Employment, Retirement Payments, and Intergenerational Trans-

fers of Assets and Education’ conducted in January 2010. Because our data for

intergenerational asset transfers is censored from below at 0 yen and from above

at 50 million yen, we first employ a Tobit model to obtain an intergenerational

transfer function. We also employ an interval regression and an ordered probit

model to ensure that our results are independent of the choice of econometric

model.

Regardless of which econometric model we use, we obtain reasonable esti-

mates for the intergenerational transfer function with similar parameter values.

Our results regarding basic household attributes can be summarized as follows.

First, most intergenerational transfers appear to occur at the time of death of

ASIAN ECONOMIC JOURNAL 42

© 2014 The Authors

Asian Economic Journal © 2014 East Asian Economic Association and Wiley Publishing Asia Pty Ltd