TY  - JOUR
TI  - The choice of the social discount rate and the opportunity cost of public
                        funds
AU  - Moore, Mark A.
AU  - Boardman, Anthony E.
AU  - Vining, Aidan R.
PY  - 2013
PB  - Cambridge University Press (CUP)
LA  - eng
AB  - The decades-old literature on the correct method for choosing and<br />                        estimating a social discount rate (SDR) has resulted in two, largely<br />                        opposing viewpoints. This note seeks to clarify the key sources of<br />                        disagreement between these two camps. One view advocates that the choice<br />                        should be based chiefly on the social opportunity cost of the return to<br />                        foregone private capital investment (SOC), and suggests a SDR of around 7%.<br />                        The other viewpoint, expressed by the authors, argues that the choice should<br />                        be based on the social rate of time preference (STP), the rate at which<br />                        society is willing to trade present for future consumption, suggesting a SDR<br />                        of around 3.5%. Because of the fundamentally normative basis of the SDR<br />                        choice, neither approach generates testable hypotheses that would allow<br />                        falsification. For government project evaluation, the choice ultimately<br />                        depends on the opportunity cost of public funds, which in turn depends on<br />                        how fiscal policy actually operates. The STP approach contends that<br />                        governments set targets for deficits and public debt, so that a marginal<br />                        government project will be tax-financed, largely crowding out current<br />                        consumption. The SOC belief is that governments set revenue targets, so that<br />                        any government project will be deficit-financed on the margin, which will<br />                        largely crowd out private investment. The authors also argue that a SDR<br />                        based on the STP approach is appropriate for: benefit-cost analysis of<br />                        government regulations, self-financing government projects, and government<br />                        cost-effectiveness studies.
UR  - https://doi.org/10.1515/jbca-2013-0023
DO  - 10.1515/jbca-2013-0023
T2  - Journal of benefit-cost analysis: JBCA
VL  - 4
IS  - 3
SN  - 2152-2812
SP  - 401-409
UR  - https://www.pollux-fid.de/r/cr-10.1515/jbca-2013-0023
H1  - Pollux (Fachinformationsdienst Politikwissenschaft)
ER  -