In this paper I offer a fairly complete account of the idea of social discount rates as applied to public policy analysis. I show that those rates are neither ethical primitives nor observables as market rates of return on investment, but that they ought instead to be derived from economic forecasts and society's conception of distributive justice concerning the allocation of goods and services across personal identities, time, and events. However, I also show that if future uncertainties are large, the formulation of intergenerational well-being we economists have grown used to could lead to ethical paradoxes even if the uncertainties are thin-tailed. Various modelling avenues that offer a way out of the dilemma are discussed. None is entirely satisfactory.

/pdf/discounting-climate-change-2y9f4tc801.pdf

Discounting climate change

It is well-known that the discount rate is crucially important for estimating the social cost of carbon, a standard indicator for the seriousness of climate change and desirable level of climate policy. The Ramsey equation for the discount rate has three components: the pure rate of time preference, a measure of relative risk aversion, and the rate of growth of per capita consumption. Much of the attention on the appropriate discount rate for long-term environmental problems has focussed on the role played by the pure rate of time preference in this formulation. We show that the other two elements are numerically just as important in considerations of anthropogenic climate change. The elasticity of the marginal utility with respect to consumption is particularly important because it assumes three roles: consumption smoothing over time, risk aversion, and inequity aversion. Given the large uncertainties about climate change and widely asymmetric impacts, the assumed rates of risk and inequity aversion can be expected to play significant roles. The consumption growth rate plays multiple roles, as well. It is one of the determinants of the discount rate, and one of the drivers of emissions and hence climate change. We also find that the impacts of climate change grow slower than income, so the effective discount rate is higher than the real discount rate. Moreover, the differential growth rate between rich and poor countries determines the time evolution of the size of the equity weights. As there are a number of crucial but uncertain parameters, it is no surprise that one can obtain almost any estimate of the social cost of carbon. We even show that, for a low pure rate of time preference, the estimate of the social cost of carbon is indeed arbitrary - as one can exclude neither large positive nor large negative impacts in the very long run. However, if we probabilistically constrain the parameters to values that are implied by observed behaviour, we find that the expected social cost of carbon, corrected for uncertainty and inequity, is approximate 60 US dollar per metric tonne of carbon (or roughly $17 per tonne of CO2) under the assumption that catastrophic risk is zero. --

/pdf/discounting-for-climate-change-52u0b3a97w.pdf

Discounting for Climate Change

In the late 20th century Ireland underwent a dramatic economic transformation based on the growing strength of its information technology indutries. This article discusses Ireland's development strategies, in particular focussing on the Irish software industry.

/pdf/the-flexible-developmental-state-globalization-information-wjpngwsjkp.pdf

The Flexible Developmental State: Globalization, Information Technology, and the “Celtic Tiger”:

This paper summarises trends and driving factors in income distribution and poverty in 21 OECD Member countries analysing separately the working- and the retirement-age populations. Shifts in relative incomes in the past ten years generally favoured prime-age and elderly age groups. Persons living in multi-adult households have seen their income shares rise somewhat, especially in households without children, or when there are two or more earners present. On the other hand, younger age groups generally lost ground, and relative income levels of single parents and persons in households with no earners tended to weaken further in many countries.
There has been no generalised long-term trend in the distribution of disposable household incomes since the mid-1970s. However, during the more recent period (mid-1980s to mid-1990s), income inequality has increased in about half of the OECD countries studied, while none of the remaining countries recorded an unambiguous decrease in ...

Trends and driving factors in income distribution and poverty in the OECD area

We suggest the first large-scale international comparison of labor supply elasticities for 17 European countries and the United States using a harmonized empirical approach. We find that own-wage elasticities are relatively small and more uniform across countries than previously considered. Nonetheless, such differences do exist, and are found not to arise from different tax-benefit systems, wage/hour levels, or demographic compositions across countries, suggesting genuine differences in work preferences across countries. Furthermore, three other findings are consistent across countries: The extensive margin dominates the intensive margin; for singles, this leads to larger responses in low-income groups; and income elasticities are extremely small.

Comparing Labor Supply Elasticities in Europe and the United States: New Results

How great an effect does the structure of income taxes have on women’s labour market participation? This issue is investigated using a discrete choice static labour supply model for married couples in Ireland. The model incorporates fixed costs of working and simultaneously explains participation decisions and preferred hours of work. Details of the tax system are fully incorporated, and key elements of the welfare system are also taken into account. The model is estimated using data from the 1994 wave of the Living in Ireland Survey. The results are used to analyse the labour supply effects of a move to greater independence in the tax treatment of couples. The influence of tax structure on participation is reconsidered in the light of trends in women’s participation in the labour market and two key changes in the structure of taxation: a shift from a joint or aggregated basis of assessment to an “income-splitting” system in 1980 and a further substantial shift from income-splitting towards greater independence from 2000 onwards.

Tax Structure and Female Labour Market Participation: Evidence from Ireland. ESRI WP208. September 2007

How great an effect does the structure of income taxes have on female labour supply? This issue is investigated using a discrete-choice static labour supply model for married couples in Ireland. The model incorporates fixed costs of working and simultaneously explains participation decisions and preferred hours of work. The model is estimated using data from the 1994 wave of the Living in Ireland Survey. Simulations examine the labour supply effects of introducing greater independence in the tax treatment of married couples, compared with an income-splitting system, and alternative forms of tax cuts.

Tax Structure and Female Labour Supply: Evidence from Ireland

Country Case Study - Ireland

The 1980s and 1990s have seen Ireland on a macroeconomic roller-coaster ride, as described and analysed in other papers in this volume, with stagnation through much of the 1980s, economic growth accelerating from 1987, stop-starting in the early 1990s, and then reaching and sustaining exceptionally high levels each year from 1994. Recent research internationally has highlighted the fact that income and earnings inequality increased very sharply during the 1980s and into the 1990s in a number of industrialised countries, notably the UK and the USA. Against the background of dramatic changes in the macroeconomy, has Ireland seen such an increase in inequality? Here we examine how earnings dispersion, the distribution of income, and household poverty evolved in Ireland during the 1980s and 1990s, and seek to place Ireland in comparative perspective.

Income Inequality in Ireland in the 1980s and 1990s

Family Labour Supply and Taxes in Ireland. ESRI WP78. October 1996

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