IDEAS home Printed from https://ideas.repec.org/a/eee/soceps/v67y2019icp78-85.html
   My bibliography  Save this article

Estimation of a social discount rate for Turkey

Author

Listed:
  • Akbulut, Hale
  • Seçilmiş, Erdem

Abstract

Cost-benefit analysis is probably the most comprehensive method of economic evaluation for public projects. Social discount rate, which makes it possible to compare the social benefits and costs extended over a period of time, has a key role in the allocation of public resources between alternative ends via cost-benefit analysis. Public sector needs to use the correct social discount rate in order to achieve a fair allocation of the fiscal burden between generations. While a high social discount rate may place a heavy fiscal burden on future generations, a low social discount rate may cause unfeasible projects to be approved. However, although social discount rate is a crucial parameter for public project appraisals, there is a lack of updated social discount rate for Turkey. In this study, the social rate of time preference approach is used to estimate this social discount rate. To this aim, both the personal taxation and the food demand methods are employed in order to estimate the elasticity of the marginal utility of consumption, which is a critical determinant of the social rate of time preference based on the Ramsey formula. The overall results show that the social discount rate estimated using the personal tax method is 4.88%, whereas it is 4.41% using the food demand method. Since the level of tax evasion is very high in Turkey, we recommend that the value indicated by the food demand method should be used employing the autoregressive distributed lag cointegration procedure.

Suggested Citation

  • Akbulut, Hale & Seçilmiş, Erdem, 2019. "Estimation of a social discount rate for Turkey," Socio-Economic Planning Sciences, Elsevier, vol. 67(C), pages 78-85.
  • Handle: RePEc:eee:soceps:v:67:y:2019:i:c:p:78-85
    DOI: 10.1016/j.seps.2018.10.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S003801211730318X
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
    2. David F. Burgess, 1989. "The Social Opportunity Cost of Capital in the Presence of Labour Market Distortions," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 245-262, May.
    3. Haluk Sezer, 2006. "Regional welfare weights for Turkey," Journal of Economic Studies, Emerald Group Publishing, vol. 33(5), pages 357-368, November.
    4. Robert W. Hahn & Richard L. Schmalensee & Roger Noll & Robert Stavins & Lester B. Lave & George C. Eads & Milton Russell & V. Kerry Smith & Maureen L. Cropper & Paul R. Portney & Kenneth J. Arrow, 1996. "Benefit-Cost Analysis in Environmental, Health, and Safety Regulation: A Statement of Principles," Books, American Enterprise Institute, number 51790, September.
    5. Erhun Kula, 2004. "Estimation of a Social Rate of Interest for India," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(1), pages 91-99, March.
    6. ., 1994. "Cost-Benefit Analysis," Chapters, in: Geoffrey M. Hodgson & Warren J. Samuels & Marc R. Tool (ed.),The Elgar Companion to Institutional and Evolutionary Economics, volume 0, chapter 19, Edward Elgar Publishing.
    7. Emeka Nkoro & Aham Kelvin Uko, 2016. "Autoregressive Distributed Lag (ARDL) cointegration technique: application and interpretation," Journal of Statistical and Econometric Methods, SCIENPRESS Ltd, vol. 5(4), pages 1-3.
    8. E Kula, 1985. "An Empirical Investigation on the Social Time-Preference Rate for the United Kingdom," Environment and Planning A, , vol. 17(2), pages 199-212, February.
    9. Moore Mark A. & Vining Aidan R. & Boardman Anthony E., 2013. "More appropriate discounting: the rate of social time preference and the value of the social discount rate," Journal of Benefit-Cost Analysis, De Gruyter, vol. 4(1), pages 1-16, March.
    10. Samih Antoine Azar, 2007. "Measuring the US social discount rate," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(1), pages 63-66, January.
    11. 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.
    12. 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.
    13. 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;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 13(2), pages 127-144, April.
    14. Barry Williams, 2008. "Methods explained: Cost-benefi t analysis," Economic & Labour Market Review, Palgrave Macmillan;Office for National Statistics, vol. 2(10), pages 57-67, December.
    15. Kay, J. A., 1972. "Social discount rates," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 359-378, November.
    16. Bradford, David F, 1975. "Constraints on Government Investment Opportunities and the Choice of Discount Rate," American Economic Review, American Economic Association, vol. 65(5), pages 887-899, December.
    17. David F. Burgess & Richard O. Zerbe, 2013. "Appropriate discounting for benefit–cost analysis," Chapters, in: Scott O. Farrow & Richard Zerbe, Jr. (ed.),Principles and Standards for Benefit–Cost Analysis, chapter 7, pages 247-263, Edward Elgar Publishing.
    18. David Evans & Haluk Sezer, 2002. "A time preference measure of the social discount rate for the UK," Applied Economics, Taylor & Francis Journals, vol. 34(15), pages 1925-1934.
    19. Ferda Halicioglu & Cevat Karatas, 2011. "Estimation of Economic Discounting Rate for Practical Project Appraisal: The Case of Turkey," Journal of Developing Areas, Tennessee State University, College of Business, vol. 45(1), pages 155-166, July-Dece.
    20. Ferda Halicioglu & Cevat Karatas, 2013. "A social discount rate for Turkey," Quality & Quantity: International Journal of Methodology, Springer, vol. 47(2), pages 1085-1091, February.
    21. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    22. Peter Diamond, 1968. "The Opportunity Costs of Public Investment: Comment," The Quarterly Journal of Economics, Oxford University Press, vol. 82(4), pages 682-688.
    23. Haluk Sezer, 2007. "Derivation of Regional Welfare Weights: An Application to Turkey," Chapters, in: Massimo Florio (ed.),Cost–Benefit Analysis and Incentives in Evaluation, chapter 14, Edward Elgar Publishing.
    24. repec:reg:rpubli:98 is not listed on IDEAS
    25. Liu, Liqun, 2003. "A marginal cost of funds approach to multi-period public project evaluation: implications for the social discount rate," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1707-1718, August.
    26. Erhun Kula, 1984. "Derivation of Social Time Preference Rates for the United States and Canada," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 873-882.
    27. Burgess, David F. & Zerbe, Richard O., 2011. "Appropriate Discounting for Benefit-Cost Analysis," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 2(2), pages 1-20, April.
    28. David Evans, 2004. "A social discount rate for France," Applied Economics Letters, Taylor & Francis Journals, vol. 11(13), pages 803-808.
    29. Burgess, David F., 2013. "Reconciling alternative views about the appropriate social discount rate," Journal of Public Economics, Elsevier, vol. 97(C), pages 9-17.
    30. Yoram Amiel & John Creedy & Stan Hurn, 1999. "Measuring Attitudes Towards Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 83-96, March.
    31. Lopez, Humberto, 2008. "The social discount rate : estimates for nine Latin American countries," Policy Research Working Paper Series 4639, The World Bank.
    32. 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.
    33. R. A. Sharma & M. J. McGregor & J. F. Blyth, 1991. "The Social Discount Rate For Land‐Use Projects In India," Journal of Agricultural Economics, Wiley Blackwell, vol. 42(1), pages 86-92, January.
    34. David Evans & Haluk Sezer, 2004. "Social discount rates for six major countries," Applied Economics Letters, Taylor & Francis Journals, vol. 11(9), pages 557-560.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:soceps:v:67:y:2019:i:c:p:78-85. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Haili He). General contact details of provider: http://www.elsevier.com/locate/seps .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.