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Understanding the Decline in Japan's Saving Rate in the New Millennium

  • Tokuo Iwaisako

    (Policy Research Institute)

  • Keiko Okada
Registered author(s):

    The decline in Japan's household saving rate accelerated sharply after 1998, but then decelerated again from 2003. Such nonlinear movement in the saving rate cannot be explained by the monotonic trend of population aging alone. According to the life cycle model of consumption and saving, population aging will increase short-run fluctuations in the saving rate, because the consumption of older households is less sensitive to income shocks. Analyzing income and spending data for different age groups, we argue that this is exactly what happened during the recession following the banking panic of 1997/98. Two important changes in income distribution are associated with this mechanism. First, the negative labor income shock, which in the initial stages of the lost decade was mostly borne by the younger generation, spread to older working households in the late 1990s and early 2000s. Second, there was a significant income shift from labor to shareholders associated with the corporate restructuring being undertaken during this time. This resulted in a decline in the wage share, so that the increase in corporate saving offset the decline in household saving.

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    Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 23113.

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    Date of creation: Jan 2010
    Date of revision:
    Handle: RePEc:eab:macroe:23113
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    1. Fatih Guvenen, 2006. "Learning your earning: are labor income shocks really very persistent?," Discussion Paper / Institute for Empirical Macroeconomics 145, Federal Reserve Bank of Minneapolis.
    2. Horioka, C.Y., 1992. "The Impact of the Age structure of the Population on the Household Saving Rate in Japan : A Cointegration Analysis," ISER Discussion Paper 0287, Institute of Social and Economic Research, Osaka University.
    3. Arata Ito & Tsutomu Watanabe & Tomoyoshi Yabu, 2007. "Fiscal Policy Switching: Evidence from Japan, the U.S., and the U.K," IMES Discussion Paper Series 07-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
    4. Horioka, Charles Yuji, 2010. "The (dis)saving behavior of the aged in Japan," Japan and the World Economy, Elsevier, vol. 22(3), pages 151-158, August.
    5. R. Anton Braun & Daisuke Ikeda & Douglas H. Joines, 2007. "The Saving Rate in Japan: Why It Has Fallen and Why It Will Remain Low," CIRJE F-Series CIRJE-F-535, CIRJE, Faculty of Economics, University of Tokyo.
    6. Hanno Lustig & Stijn Van Nieuwerburgh, 2005. "The Returns on Human Capital: Good News on Wall Street is Bad News on Main Street," NBER Working Papers 11564, National Bureau of Economic Research, Inc.
    7. UNAYAMA Takashi, 2010. "Discrepancy between Saving Rates in SNA and Family Income and Expenditure Survey and Its Implications (Japanese)," Discussion Papers (Japanese) 10003, Research Institute of Economy, Trade and Industry (RIETI).
    8. Takeo Hoshi & Anil Kashyap, 2004. "Corporate Financing and Governance in Japan: The Road to the Future," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582481, June.
    9. Selo Imrohoroglu & Kaiji Chen & Ayse Imrohoroglu, 2005. "Japanese Saving Rate," 2005 Meeting Papers 747, Society for Economic Dynamics.
    10. Barry Bosworth & Gary Burtless & John Sabelhaus, 1991. "The Decline in Saving: Some Microeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 183-256.
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