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Social discount rates for member countries of the European Union

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  • David J. Evans
  • Haluk Sezer
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    Abstract

    Purpose – This paper sets out to estimate discount rates for EU members, on a consistent time preference basis, for application in the appraisal of social projects. The value of the discount rate can have an important influence on the allocation of funds between short-term and long-term uses. Design/methodology/approach – A key component of the social discount rate is the elasticity of marginal utility of consumption (e) and it is estimated from OECD data relating to marginal and average rates of income tax. A tax model based on the principle of equal absolute sacrifice of satisfaction is employed. Findings – The estimated discount rates, based on social time preference, mostly lie in the range 3-5.5 per cent. The main source of variation in rates is differential growth in per capita consumption. Estimates of e are reasonably consistent and for 15 of the countries they lie in the range 1.3-1.6. Research limitations/implications – For more comprehensive tax information, then additional data from each country's tax authority are required. The research on estimates of e and social time preference rates can be extended to cover non-European countries. Practical implications – In the interests of a consistent equitable treatment of future generations, member countries of the EU should employ the same methodology in estimating social discount rates. Originality/value – This paper applies a practical tax-based approach to the estimation of e for a large number of European countries. The paper will be of interest to academics specialising in welfare economics and to practitioners involved in social project appraisal.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

    Volume (Year): 32 (2005)
    Issue (Month): 1 (January)
    Pages: 47-59

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    Handle: RePEc:eme:jespps:v:32:y:2005:i:1:p:47-59

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    Related research

    Keywords: European Union; International Economics; Taxes;

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    Cited by:
    1. Monteiro, Henrique, 2007. "Recuperação de custos no sector de abastecimento de água e drenagem e tratamento de águas residuais em Portugal
      [Cost recovery in the Portuguese water supply and wastewater drainage and treatme
      ," MPRA Paper 4237, University Library of Munich, Germany.
    2. Mareike Schad & Jürgen John, 2012. "Towards a social discount rate for the economic evaluation of health technologies in Germany: an exploratory analysis," The European Journal of Health Economics, Springer, vol. 13(2), pages 127-144, April.
    3. Rolf Aaberge & Magne Mogstad, 2006. "On the Definition and Measurement of Chronic Poverty," ICER Working Papers 36-2006, ICER - International Centre for Economic Research.
    4. Alfred Endres & Regina Bertram & Bianca Rundshagen, 2007. "Environmental Liability Law and Induced Technical Change – The Role of Discounting," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 36(3), pages 341-366, March.
    5. Halicioglu, Ferda & Karatas, Cevat, 2010. "Estimation of economic discounting rate for practical project appraisal: the case of Turkey," MPRA Paper 29577, University Library of Munich, Germany.
    6. Monteiro, Henrique, 2008. "Evolution of cost recovery levels in the Portuguese water supply and wastewater industry 1998-2005," MPRA Paper 11490, University Library of Munich, Germany.
    7. Halicioglu, Ferda & Karatas, Cevat, 2011. "A social discount rate for Turkey," MPRA Paper 32925, University Library of Munich, Germany.
    8. Narita, Daiju & Tol, Richard S. J. & Anthoff, David, 2009. "International Climate Policy and Regional Welfare Weights," Papers WP332, Economic and Social Research Institute (ESRI).
    9. Roger Cooke, 2013. "Uncertainty analysis comes to integrated assessment models for climate change…and conversely," Climatic Change, Springer, vol. 117(3), pages 467-479, April.
    10. Heinzel, Christoph, 2008. "Implications of diverging social and private discount rates for investments in the German power industry: a new case for nuclear energy?," Dresden Discussion Paper Series in Economics 03/08, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
    11. Michael Spackman, 2011. "Government discounting controversies: the valuation of social time preference," Grantham Research Institute on Climate Change and the Environment Working Papers 68, Grantham Research Institute on Climate Change and the Environment.
    12. Massimo Florio & Emanuela Sirtori, 2013. "The social cost of capital: recent estimates for the EU countries," Working Papers 201303, Centre for Industrial Studies (CSIL).
    13. Jan Schumacher & Wolfgang Buchholz, 2008. "Discounting and Welfare Analysis Over Time: Choosing the ç," CESifo Working Paper Series 2230, CESifo Group Munich.
    14. David J. EVANS, 2006. "Social discount rates for the European Union," Departmental Working Papers 2006-20, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.

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