The Structural Funds of the European Union
Edited by Massimo Florio
Chapter 12: Social Discount Rates for the European Union: New Estimates
12. Social discount rates for the European Union: new estimates David Evans INTRODUCTION In its current social project appraisal guidance, the European Commission (EC) advocates a benchmark discount rate of 5 per cent for cost–beneﬁt analysis in the case of EU member countries. This is a compromise ﬁgure based on market interest rate, cost of capital and time preference considerations, European Commission (2002, Appendix B.2, pp. 104–5). Diﬀerent discounting practices by governments have resulted in the application of some widely divergent social discount rates (SDR) across European countries. In 2002, for example, the French rate, based on the marginal product of capital, was 8 per cent while the German rate, based on recent values of the real long-term government bond rate, was just 3 per cent. The oﬃcial rate for the UK, a compromise between cost of capital and time preference considerations, was 6 per cent. See OECD (2001) for the application of these particular rates with respect to investment in road transport. While Germany has continued with the same approach since 2002, the British government reduced its rate, now based solely on social time preference, to just 3.5 per cent, HM Treasury (2003, Annex 6: 97). The French government followed suit in 2005 by reducing its oﬃcial rate to 4 per cent. There is near convergence now between the oﬃcial discount rates of three important EU member countries. An important reason for focusing on a possible 3–4 per cent range for...
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