Because of the time value of money (that is, a dollar today can be invested to yield more than a dollar tomorrow), a project's costs and benefits in different periods are not comparable. Therefore, a discount rate that will convert future sums into present values is used in cost-benefit analysis. This rate fundamentally influences the outcome: a rate too high will favour the present over the future and vice-versa. This paper addresses the issue of what the appropriate social discount rate for cost-benefit analysis of public projects should be in Quebec. In practice the Quebec government often uses the public sector's long-term borrowing costs as a proxy for the social discount rate. We find that this is inconsistent with both the scientific literature and international methodology on the subject.

The social discount rate in Quebec:

• should be 8% in nominal terms, whereas the real rate should be 6%.

• Should be calculated without a risk premium.

• Should apply to all projects, including public private partnerships (PPPs).

• Should be revised every five years.

View the document

Center for Interuniversity Research and Analysis of Organizations
1130 rue Sherbrooke Ouest, suite 1400
Montréal, Québec (Canada) H3A 2M8
(514) 985-4000
(514) 985-4039

© 2019 CIRANO. All rights reserved.

Partner of :

Website Security Test