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Reconciling alternative views about the appropriate social discount rate

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  • Burgess, David F.
Abstract
This paper shows that, in an economy with an exogenous rate of return and a given capital income tax distortion, and with lump sum taxes as the marginal tax instrument, the SOC and MCF criteria both correctly identify all worthwhile projects if the criteria are properly applied. The equivalence between the SOC and MCF criteria continues to hold i) if distortionary taxes are used to balance the budget, and ii) if the rate of return to capital is endogenous. Apparent differences between the SOC and MCF criteria arise from different definitions of a project's indirect revenue effect. Neither criterion has an implementation advantage because the information requirements for each are identical.

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  • Burgess, David F., 2013. "Reconciling alternative views about the appropriate social discount rate," Journal of Public Economics, Elsevier, vol. 97(C), pages 9-17.
    • Handle: RePEc:eee:pubeco:v:97:y:2013:i:c:p:9-17
    DOI: 10.1016/j.jpubeco.2012.08.009
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Glenn P. Jenkins & Armin Zeinali, 2014. "Cost-Effective Infrastructure Choices In Education: Location, Build Or Repair," Development Discussion Papers 2013-08, JDI Executive Programs.
    3. Liqun Liu & Andrew J. Rettenmaier & Thomas R. Saving, 2021. "Discounting Environmental Benefits for Future Generations," Public Finance Review, , vol. 49(1), pages 41-70, January.
    4. Burgess David F. & Zerbe Richard O., 2013. "The most appropriate discount rate," Journal of Benefit-Cost Analysis, De Gruyter, vol. 4(3), pages 391-400, December.
    5. Akbulut, Hale & Seçilmiş, Erdem, 2019. "Estimation of a social discount rate for Turkey," Socio-Economic Planning Sciences, Elsevier, vol. 67(C), pages 78-85.
    6. Moore, Mark A. & Boardman, Anthony E. & Vining, Aidan R., 2013. "The choice of the social discount rate and the opportunity cost of public funds," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 4(3), pages 401-409, December.
    7. James Broughel, 2020. "Cost-Benefit Analysis as a Failure to Learn from the Past," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 35(Spring 20), pages 105-113.
    8. Frits Bos & Thomas van der Pol & Gerbert Romijn, 2018. "Should CBA’s include a correction for the marginal excess burden of taxation?," CPB Discussion Paper 370, CPB Netherlands Bureau for Economic Policy Analysis.
    9. Frits Bos & Thomas van der Pol & Gerbert Romijn, 2018. "Should CBA’s include a correction for the marginal excess burden of taxation?," CPB Discussion Paper 370.rdf, CPB Netherlands Bureau for Economic Policy Analysis.

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    Keywords

    Social discount rate; Project evaluation;

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