Economic development and time preference schedule: The case of Japan and East Asian NICs

Abstract

The constancy of the time preference rate has been a traditional assumption of the literature on intertemporal choice of consumers. This chapter examines empirically the validity of the constancy hypothesis of the time preference schedule. Three alternative hypotheses concerning the time preference rate are investigated. The first hypothesis posits that the time preference rate decreases as the economy develops (Fisher hypothesis). The second hypothesis posits that the time preference rate increases as the economy develops (Uzawa hypothesis). The third hypothesis, which is a combination of the second and third hypotheses, posits that as a nation develops, the time preference rate decreases up to a certain point, and thereafter, the time preference rate increases (Fukao-Hamada hypothesis). Post-war annual time series data from Taiwan, Japan, and Korea are employed to examine these hypotheses. I find that the Fukao-Hamada hypothesis is supported for Taiwan and Japan, while the time preference rate is constant for Korea.