Discussion paper
DP16114 The Cross-Sectional Implications of the Social Discount Rate
How should policy discount future returns? The standard approach to this normative question is to ask how much society should care about future generations. This paper establishes an alternative approach, based on the social desirability of age-based redistribution. The social discount rate is below the market interest rate only if it is desirable to increase the consumption of the young at the expense of the old. Along the balanced growth path, small deviations of the social discount rate from the market interest rate imply large welfare gains from redistributing consumption across age groups.
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