IDEAS home Printed from https://ideas.repec.org/p/mil/wpdepa/2006-20.html
   My bibliography  Save this paper

Social discount rates for the European Union

Author

Listed:
  • David J. EVANS

    ()

Abstract

In 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

Suggested Citation

  • 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.
  • Handle: RePEc:mil:wpdepa:2006-20
    as

    Download full text from publisher

    File URL: http://wp.demm.unimi.it/files/wp/2006/DEMM-2006_020wp.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. 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 1118-1137, December.
    2. D. Evans & E. Kula & H. Sezer, 2005. "Regional welfare weights for the UK: England, Scotland, Wales and Northern Ireland," Regional Studies, Taylor & Francis Journals, vol. 39(7), pages 923-937.
    3. Richard Blundell & Martin Browning & Costas Meghir, 1994. "Consumer Demand and the Life-Cycle Allocation of Household Expenditures," Review of Economic Studies, Oxford University Press, vol. 61(1), pages 57-80.
    4. Marco Percoco, 2007. "A social discount rate for Italy," Applied Economics Letters, Taylor & Francis Journals, vol. 15(1), pages 73-77.
    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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. David Evans, 2004. "A social discount rate for France," Applied Economics Letters, Taylor & Francis Journals, vol. 11(13), pages 803-808.
    11. 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.
    12. Blundell, Richard, 1988. "Consumer Behaviour: Theory and Empirical Evidence--a Survey," Economic Journal, Royal Economic Society, vol. 98(389), pages 16-65, March.
    13. 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 570-597, June.
    14. 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.
    15. 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)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Silvana Tordo, 2007. "Fiscal Systems for Hydrocarbons : Design Issues," World Bank Publications, The World Bank, number 6746, April.
    2. Buchholz, Wolfgang & Schumacher, Jan, 2010. "Discounting and welfare analysis over time: Choosing the [eta]," European Journal of Political Economy, Elsevier, vol. 26(3), pages 372-385, September.
    3. 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.
    4. Massimo Florio & Silvia Vignetti, 2008. "Building a bridge across CBA traditions: the contribution of EU Regional Policy," Working Papers 200908, CSIL Centre for Industrial Studies.
    5. Jan Kubíček & Leoš Vítek, 2010. "Hodnocení veřejných projektů z hlediska společenské míry diskontace
      [Evaluation of Public Projects from the Viewpoint of Social Rate of Discount]
      ," Politická ekonomie, University of Economics, Prague, vol. 2010(3), pages 291-304.
    6. King, Steven & Fraser, Iain, 2013. "Divestment of the English Forestry Estate: An economically sound choice?," Ecological Economics, Elsevier, vol. 88(C), pages 25-31.

    More about this item

    Keywords

    Cost-benefit analysis; social discount rate; European Union;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:mil:wpdepa:2006-20. 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: (DEMM Working Papers). General contact details of provider: http://edirc.repec.org/data/damilit.html .

    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.