Public Sector Discount Rates: A Comparison of Alternative Approaches

John Creedy and Hemant Passi

Australian Economic Review, 2018, vol. 51, issue 1, 139-157

Abstract: This article describes alternative approaches to the public sector discount rate and explains the assumptions involved. Time†varying rates are also considered. The social opportunity cost of capital (SOC) is the rate of return that could be earned on the ‘next best alternative’. The social rate of time preference (SRTP) is the rate of return required in order to divert resources to a public investment. Only in an ‘ideal’ market are these two rates brought into alignment in equilibrium. Essentially the discount rate reflects how the government values the future when making decisions on behalf of society: value judgements are unavoidable.

Date: 2018
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https://doi.org/10.1111/1467-8462.12252

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Working Paper: Public Sector Discount Rates: A Comparison of Alternative Approaches (2017)
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