Social discount rates for the European Union
AbstractIn relation to social project appraisal in EU countries, governments should try to agree on a single generally preferred method of discounting. Consistency of approach should result in the application of similar discount rates by countries. Before 2003, the use of different methods resulted in the application of widely divergent rates; for example, 8% in France, 3% in Germany and 6% in Britain. New appraisal guidance by the British Treasury in 2003 saw the official UK rate, now based solely on social time preference, reduced to just 3. 5%. In 2005, France followed suit reducing its rate from 8% to 4%. This paper argues for a standard benchmark European discount rate of around 3%-4% based on social time preference (STPR). This rate is somewhat lower than the 5% rate suggested in the 2002 EC guide to cost-benefit analysis and, as such, its application should result in a more generous allocation of budget funds to longer-term projects. For estimation purposes, the most troublesome component of the STPR formula is the elasticity of marginal utility of consumption (e). This paper reviews recent evidence on e and argues for the application of more thoughtful approaches in order to establish a reliable interval estimate for EU countries
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2006-20.
Date of creation: 13 Oct 2006
Date of revision:
Cost-benefit analysis; social discount rate; European Union;
Find related papers by JEL classification:
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-28 (All new papers)
- NEP-EEC-2006-10-28 (European Economics)
- NEP-PBE-2006-10-28 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kula, Erhun, 1984. "Derivation of Social Time Preference Rates for the United States and Canada," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 873-82, November.
- Orazio P. Attanasio & Martin Browning, 1993.
"Consumption over the Life Cycle and over the Business Cycle,"
NBER Working Papers
4453, National Bureau of Economic Research, Inc.
- Attanasio, Orazio P & Browning, Martin, 1995. "Consumption over the Life Cycle and over the Business Cycle," American Economic Review, American Economic Association, vol. 85(5), pages 1118-37, December.
- Attanasio, O.P. & Browning, M., 1993. "Consumption Over the Life Cycle and Over the Business Cycle," Papers 9314, Tilburg - Center for Economic Research.
- Erhun Kula, 2004. "Estimation of a Social Rate of Interest for India," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(1), pages 91-99.
- Michael Spackman, 2004. "Time discounting and of the cost of capital in government," Fiscal Studies, Institute for Fiscal Studies, vol. 25(4), pages 467-518, December.
- James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
- David J. Evans & Haluk Sezer, 2005. "Social discount rates for member countries of the European Union," Journal of Economic Studies, Emerald Group Publishing, vol. 32(1), pages 47-59, January.
- Marco Percoco, 2007. "A social discount rate for Italy," Applied Economics Letters, Taylor & Francis Journals, vol. 15(1), pages 73-77.
- David J. Evans, 2005. "The elasticity of marginal utility of consumption: estimates for 20 OECD countries," Fiscal Studies, Institute for Fiscal Studies, vol. 26(2), pages 197-224, June.
- Richard Blundell & Martin Browning & Costas Meghir, 1993.
"Consumer demand and the life-cycle allocation of household expenditures,"
IFS Working Papers
W93/11, Institute for Fiscal Studies.
- Blundell, Richard & Browning, Martin & Meghir, Costas, 1994. "Consumer Demand and the Life-Cycle Allocation of Household Expenditures," Review of Economic Studies, Wiley Blackwell, vol. 61(1), pages 57-80, January.
- Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-97, June.
- David Evans, 2004. "A social discount rate for France," Applied Economics Letters, Taylor & Francis Journals, vol. 11(13), pages 803-808.
- David Evans, 2004. "The elevated status of the elasticity of marginal utility of consumption," Applied Economics Letters, Taylor & Francis Journals, vol. 11(7), pages 443-447.
- Blundell, Richard, 1988. "Consumer Behaviour: Theory and Empirical Evidence--a Survey," Economic Journal, Royal Economic Society, vol. 98(389), pages 16-65, March.
- King, Steven & Fraser, Iain, 2013. "Divestment of the English Forestry Estate: An economically sound choice?," Ecological Economics, Elsevier, vol. 88(C), pages 25-31.
- Silvana Tordo, 2007. "Fiscal Systems for Hydrocarbons : Design Issues," World Bank Publications, The World Bank, number 6746, March.
- Jan Kubíček & Leoš Vítek, 2010. "Evaluation of Public Projects from the Viewpoint of Social Rate of Discount," Politická ekonomie, University of Economics, Prague, vol. 2010(3), pages 291-304.
- Kovacevic, Vujadin & Wesseler, Justus, 2010. "Cost-effectiveness analysis of algae energy production in the EU," Energy Policy, Elsevier, vol. 38(10), pages 5749-5757, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (DEMM Working Papers).
If references are entirely missing, you can add them using this form.