Social Rate of Discount

question 35

Essay

Social Rate of Discount. Assume that the rate of return on long-term government bonds is 7%, a typical after-tax return on investment in the private sector is 9%, the marginal corporate and individual tax rate is 40%, and consumption averages 94% of total income.
A. Based on the information provided, calculate an economically appropriate social rate of discount.
B. Would an increase in the private-sector savings rate due to a reduction in tax benefits for individual retirement accounts increase, decrease, or have no effect on the appropriate social rate of discount?

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Definitions:

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