A Study of Social Discount Rate Trend in Iran

Abstract

Discount rate is one of the important variables in the intertemporal analysis which makes it possible to compare the current and the future values, and enables the policymakers to make better decisions. In this context, the discount rate is a vital variable for the accurate evaluation of economic projects. Considering the different approaches which governmental and private sectors use to assess the governmental projects, a separate discount rate is used, which is called social discount rate (SDR). In this paper, by using the structural equation model, we have estimated the SDR trend in the Iranian economy during the period of 1996–2016. To do that, by extracting the influencing and consequence factors of SDR (as latent variables), we used a Multiple Indicators and Multiple Causes (MIMIC) model. The SDR trend, as the main finding of this paper, seems to be robust enough due to its explanatory ability for the fluctuations of the Iranian economy in reality. Results show that the SDR has had a mild declining trend in the Iranian economy during the period, and among the effective variables, the inflation rate has had the most effect on its trend. Accordingly, when the prices rose during the period of 2012–2014, the SDR trend experienced more than 60% increasing jump. However the GDP has been the variable, which is mostly affected by the SDR fluctuations. It seems that controlling the inflation and consequently the social inflationary expectation can be a proper policy to manage the SDR in Iran.