The Multi-Period Cost-Benefit Rule with Mobile Capital and Distorted Labor
Lind (1990) argues that capital mobility should be incorporated into the discussions of the social discount rate. He finds that when labor market distortion is ignored in that context, the appropriate discount rate for both project benefits and costs is the net rate of return, and the gross rate of return does not enter into the rule. Taking into account the labor market distortion, we find that a project’s impacts on government receipts should be incorporated into its evaluation and that costs should be multiplied by a marginal cost of funds (MCF) before being compared with benefits. Although the net rate continues to be the correct discount rate to use, the gross rate enters into the rule by having effects on the project’s receipt impacts and the MCF. Copyright Springer Science + Business Media, Inc. 2005
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- 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 887-99, December.
- Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
- Wilson, John D., 1982. "Optimal linear income taxation in the presence of emigration," Journal of Public Economics, Elsevier, vol. 18(3), pages 363-379, August.
- 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.
- Usher, Dan, 1969. "On the Social Rate of Discount: Comment," American Economic Review, American Economic Association, vol. 59(5), pages 925-29, December.
- Atkinson, Anthony B & Stern, N H, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 119-28, January.
- Sandmo, Agnar & Dreze, Jacques H, 1971.
"Discount Rates for Public Investment in Closed and Open Economies,"
London School of Economics and Political Science, vol. 38(152), pages 395-412, November.
- SANDMO, Agnar & DREZE, Jacques H., . "Discount rates for public investment in closed and open economies," CORE Discussion Papers RP -98, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Coleman Bazelon & Kent Smetters, 1999. "Discounting Inside the Washington D.C. Beltway," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 213-228, Fall.
- Browning, Edgar K & Gronberg, Timothy & Liu, Liqun, 2000. "Alternative Measures of the Marginal Cost of Funds," Economic Inquiry, Western Economic Association International, vol. 38(4), pages 591-99, October.
- P. A. Diamond & J. A. Mirrlees, 1975.
"Private Constant Returns and Public Shadow Prices,"
151, Massachusetts Institute of Technology (MIT), Department of Economics.
- Mendelsohn, Robert, 1981. "The Choice of Discount Rates for Public Projects," American Economic Review, American Economic Association, vol. 71(1), pages 239-41, March.
- Sjaastad, Larry A & Wisecarver, Daniel L, 1977. "The Social Cost of Public Finance," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 513-47, June.
- Wilson, John Douglas, 1991. "Optimal Public Good Provision with Limited Lump-Sum Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 153-66, March.
- Burgess, David F, 1988. "Complementarity and the Discount Rate for Public Investment," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 527-41, August.
- Gordon, Roger H, 1986. "Taxation of Investment and Savings in a World Economy," American Economic Review, American Economic Association, vol. 76(5), pages 1086-1102, December.
- Lind, Robert C., 1990. "Reassessing the government's discount rate policy in light of new theory and data in a world economy with a high degree of capital mobility," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages S8-S28, March.
- 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 245-62, May.
- Pestieau, Pierre M, 1975. "The Role of Taxation in the Determination of the Social Discount Rate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 362-68, June.
- Lyon, Randolph M., 1990. "Federal discount rate policy, the shadow price of capital, and challenges for reforms," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages S29-S50, March.
- Liqun Liu, 2004. "The Marginal Cost of Funds and the Shadow Prices of Public Sector Inputs and Outputs," International Tax and Public Finance, Springer, vol. 11(1), pages 17-29, January.
When requesting a correction, please mention this item's handle: RePEc:kap:itaxpf:v:12:y:2005:i:2:p:145-158. 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: (Guenther Eichhorn)or (Christopher F. Baum)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.