The proposed research is an extensive empirical study of family savings behavior using various large micro data sets, with special emphasis on tests of the dynasty model. Theories of saving can be usefully grouped into two strands: the life-cycle hypothesis of Franco Modigliani and the dynastic view of saving due to Robert Barro and Gary Becker. The former posits no altruism toward children or parents, while in the dynastic view generations are interdependent through altruism.The study first examines whether the retired decumulate bequeathable wealth, and if they do, whether decumulation is brought about by negative saving, or by the act of giving "inter vivos" gifts. The aggregate flow of intergenerational transfers for the U.S., Japan, and Canada also is calculated using cross-section data on wealth and flow of saving. A significant flow of transfers is inconsistent with the view that gifts and bequests are exchange- based rather than altruistically motivated. Next, the research turns to tests of the dynasty model using micro data. The bench mark model is the "happy family" model of Barro and Becker, where the family (dynasty) members share the same objective. The tests should suggest whether the truth is closer to the dynasty model or to the life-cycle hypothesis. A sample of parent households matched with their adult offspring available from the Panel Study of Income Dynamics (PSID) permits a test of the dynasty model's main proposition that each family member's consumption is not affected by the distribution of resources within the family. This is accomplished by examining the correlation between consumption and income across family members. Also, using a sample of Japanese extended families, a test is made of a corollary of the same proposition that the structure of demand for various commodities by the extended family should not be affected by the distribution of resources within the extended family. The proposed Japan-U.S. comparisons should allow the investigator to a get a better handle on the dynastic versus life-cycle issue by confronting these theories of saving with more varied facts. They should also contribute to our understanding of differences in the savings behavior between the two countries, which are thought to underlie their differing macroeconomic performances.
