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Does the Life Cycle Hypothesis Apply in the Case of Japan?

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  • Charles Yuji Horioka

Abstract

In this paper, we first discuss the simplest version of the life cycle model, which is arguably the most widely used theoretical model in economics, and then consider whether or not the life cycle model applies in the case of Japan using a variety of methodologies and data and placing emphasis on the author’s own research. In particular, we survey the literature on the impact of the age structure of the population on the saving rate, on the saving behavior of retired households, on saving motives, on the importance of bequests, on bequest motives, on the prevalence of altruism, and on the importance of borrowing (liquidity) constraints and show that almost all previous research suggests that the life cycle model is more applicable in Japan than it is in other countries. Thus, the answer to the question posed in the title of this paper is an unqualified “yes.” Finally, we discuss the policy implications of our finding that the life cycle model applies in the case of Japan.

Suggested Citation

  • Charles Yuji Horioka, 2020. "Does the Life Cycle Hypothesis Apply in the Case of Japan?," ISER Discussion Paper 1074, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:1074
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    File URL: https://www.iser.osaka-u.ac.jp/library/dp/2020/DP1074.pdf
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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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