Discount rate/Tutorials: Difference between revisions
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imported>Nick Gardner |
imported>Nick Gardner |
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:g is the expected future growth rate of consumption. | :g is the expected future growth rate of consumption. | ||
Evidence based upon the structure of personal income tax rates suggests that the value of η for most developed countries is close to 1.4 <ref>[http://www.allbusiness.com/public-administration/administration-economic-programs/1082042-1.htmlThe Elasticity of Marginal Utility of Consumption: Estimates for 20 OECD Countries* | |||
By Evans, David J Fiscal Studies 2005 ]</ref> | |||
Revision as of 08:40, 24 August 2008
The Ramsey equation
The social time preference rate, s, is given by:-
- s = δ + ηg
where:
- δ is the pure time preference rate (otherwise known as the utility discount rate);
- η is the elasticity of marginal utility with respect to consumption; and,
- g is the expected future growth rate of consumption.
Evidence based upon the structure of personal income tax rates suggests that the value of η for most developed countries is close to 1.4 [1]
- ↑ [http://www.allbusiness.com/public-administration/administration-economic-programs/1082042-1.htmlThe Elasticity of Marginal Utility of Consumption: Estimates for 20 OECD Countries* By Evans, David J Fiscal Studies 2005 ]