Estimation of a social discount rate for Turkey

This paper is focused in the problem of choosing a social discount rate (SDR) for public investment projects. The standard use of the cost-benefit analysis based on the exponential discounting and a constant discount rate has been criticized, when used to appraise long-term public projects. The critiques are motivated for the scarce importance this model attaches to the consequences of a certain project in the distant future and so to future generations. For this Feason, several authors have approached the discounting process in a different way, taking into account variable discount rates and new discounting functions. In this paper, we have tried to include al1 the relevant contributions on the searching of an appropriate social discount rate, offering an overview of the research in the area.

2009

The marginal cost of public funds defined as the ratio between the shadow price of tax revenues and the population average of the social marginal utility of income, is analysed within an explicit cost-benefit context. It is shown that for an optimal tax system the measure is always equal to one. Benefit and cost measures congruent with this definition are derived. Under optimal taxes a positive net social benefit is a necessary and sufficient condition for a project that passes the cost-benefit test. Under non-optimal taxes this is not the case: If taxes are too low a positive net social benefit is a necessary but not sufficient condition and if taxes are too high a sufficient but not necessary condition for an accepted project.

International journal of economics and financial research, 2022

Within the scope of optimal tax theory, the optimality problem of fiscal policies in the Turkish tax system for the period 1980-2019 will be discussed from the perspective of the Laffer curve. The study, it is aimed to obtain the real Laffer curve showing the relationship between total tax revenues and tax rate for Turkey. Macroeconomic variables such as tax rates, tax revenues, crisis periods, unemployment rates, and real wages are included in the analysis with the help of an econometric package program. Within the scope of time series, the effect of the tax rate on tax revenues was investigated using Johansen and ARDL cointegration approaches. According to the findings obtained from the analyses, the total tax rates in Turkey are on the right of the Laffer curve, in other words, the Laffer curve exceeds the optimal point. Based on the hypothetical existence of Laffer theorem"s in Turkey, the optimal tax rates were calculated for the total tax revenues, and the current tax rates of each year were compared with the optimal tax rates. It has been determined that the total tax rates in the specified period are in the forbidden region of the Laffer curve. This situation, which states that the tax burden has increased, reveals that the taxation process should be revised. There is no comprehensive empirical analysis of Turkey. The findings will guide the applications that will contribute to the field. The originality of the work; is based on the inclusion of time series analysis of macroeconomic data such as crisis periods, unemployment rates, real wages as independent variables in determining the relationship between tax revenues and tax rates. The validity of the Laffer curve for each tax (Income Tax, Corporation Tax, VAT) in the Turkish tax system can be examined with the data and methods used in the research.

National Tax Journal, 2003

This paper points out the similarities and differences between cost-benefit analysis and tax reform. By restricting the analysis to the margin it is shown that both areas can be handled by the same method. In both areas, there is a need to define social distributional weights and to evaluate the Marginal Efficiency Cost of Public Funds (MECF). It is suggested that the social distributional weights be derived from popular inequality indices. Such derivation enables the decomposition of the impact of the project (tax reform) on growth and redistribution so that one can evaluate the trade-off between the two.

The purpose of this letter is to estimate the US social discount rate, the appropriate discount rate for public capital budgets. There are two methods. One assumes that public investment displaces private consumption, and the discount rate is labelled the social rate of time preference (SRTP). The other assumes that public investment crowds out private investment, and the underlying social discount rate is market-based. The approach in this letter follows the second method. It relies on wealth maximization with the presence of two assets: one risky and one riskless. The risky security is taken to be a portfolio of common stocks, while the riskless asset is taken to be the T-bill rate. The Euler or first-order condition is independent of initial wealth. Because of that the estimate of the discount rate applies to all unanimously, and can be considered a social rate by essence. The range of the estimated social discount rate is between 5.01% and 6.17%, and the 95% confidence interval for the inferred population mean discount rate is between 5.62% and 5.71%. These results are extremely precise and reasonable, and are at the upper limit of the estimates in the literature that use a completely different approach.

The approach adopted in this paper in order to measure the US social discount rate is market-driven and relies on trade-offs in financial markets. The underlying assumptions are that public budgets displace the marginal private investment, and that US citizens borrow to finance home mortgages. The average debt capacity of the US citizen, or the representative investor, is 20%. It is argued that this produces an average return on net wealth while what is needed is a marginal return on net wealth. Taking a debt service ratio of 60% for the marginal investor yields a US social discount rate close to 3.7%, varying between 3.68% and 3.73%. This rate is lower than the rates available in the literature but is arguably more reasonable for very long-term public projects.

2011

This work focuses on the appraisal of public and environmental projects and, more specifically, on the calculation of the social discount rate (SDR) for this kind of very long-term investment projects. As a rule, we can state that the instantaneous discount rate must be equal to the hazard rate of the public good or to the mortality rate of the population that the project is intended to. The hazard can be due to technical failures of the system, but, in this paper, we are going to consider different independent variables that can cause the hazard. That is, we are going to consider a multivariate hazard rate. In our empirical application, the Spanish forest surface will be the system and the forest fire will be the fail that can be caused by several factors. The aim of this work is to integrate the different variables that produce the fail in the calculation of the SDR from a multivariate hazard rate approach.

The Journal of Developing Areas, 2011

This study focuses on estimating an economic discounting rate (EDR) to be used in project appraisals by the State Planning Organisation (SPO) of Turkey. The EDR is a policy tool used for selecting the best projects to meet the economic targets of development plans and to enable planners to choose the most profitable and feasible projects. Since the resources available to the economy are scarce, planners are expected to use cost-benefit analysis (CBA) especially, Net Present Value (NPV) criteria. The NPV is considered to be more reliable than the internal rate of return. Therefore, selection of an appropriate social discount rate is a key issue in the application of CBA for project appraisal. In this article, an attempt is made to estimate the EDR of Turkey via a "growth models" approach, providing fresh evidence for enhancing the project appraisal system in Turkey. The results reveal that the EDR of Turkey is 12.94% in the estimation period of 1985-2009. JEL Classifications: O22; C22.

Journal of Economic Structures

Iran is a semi-industrialized country that adopted the industrialization policy for development in the 1960s and expanded its manufacturing activities such as steel and car manufacturing, petrochemical and refineries during the oil boom in the 1970s. In the aftermath of Iran-Iraq war, the government of Iran found itself with a substantial disruption of supplied chains caused by the freezing of the country's foreign assets, the destructive 8-year war with Iraq (1980-1988) and economic sanctions (Pesaran 1995; Amuzegar 2000; Valadkhani 2001). In the face of such intense challenges, the government was forced to spend billions of dollars to compensate for the destruction of production capacity and infrastructure. The result of these policies, as argued by Pesaran (2000), 'had been an economy in a state of acute disequilibrium with highly distorted price signals'. These economic conditions together with the absence of a strong private sector may help explain the government's role in the economy. After the 1979 revolution, the government began the nationalization process. 1 The result of this policy was the formation of a high degree of government ownership and its associated institutional incentives which prohibited the private sector from participating

2006

Application of the social discount rate to public sector projects is one of the most crucial parameters in cost benefit analysis. Because of its importance some countries have a formal discount rate and method of discounting policies. The United Kingdom was one of the earliest to adopt a policy on discounting which started in 1967 and it is still evolving. This paper looks at the evolution of the British discounting policy with a number of constructive critical remarks focussing on the magnitude of the current rate as well as the method of discounting. It concludes that present 3.5% figure is rather low and discounting by using the declining rate is almost totally ineffective to care for future generations as compared with an alternative modified discounting which treats all generations in the same manner