Discount Rate Set Too High
The size of government liabilities is only now becoming apparent, but the choice of discount rate is crucial in estimating these. Historically this has been set using Green Book methods and FRS17 accounting standards, but now government is moving to using a rate based on hoped-for economic growth of 3% plus inflation. The more prudent rate to use would be the much lower gilt rate of under 1% â€“ the governmentâ€™s long-term index-linked cost of borrowing. Use of the 1% rate would show liabilities more than Â£2 trillion higher, and these will increase as the effects of using the higher discount rate â€˜unwindâ€™. Furthermore, the overoptimism from using a high discount rate can lead to poor policy decisions in pensions, government spending and strategic planning.
Volume (Year): 13 (2012)
Issue (Month): 3 (July)
|Contact details of provider:|| |
When requesting a correction, please mention this item's handle: RePEc:wej:wldecn:523. 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: (Ed Jones)
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.