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Our most academic publication offers research and surveys on monetary policy, national and international developments, banking, and more. The content is written for an economically informed readership—from the undergraduate student to the PhD.

Vol. 95, No. 2 (Posted 2013-03-26)

Intertemporal Discounting and Policy Selection

by Juan Carlos Conesa and Carlos Garriga

The choice of the intertemporal discount rate affects the measurement of the tax burden of different age cohorts. Small changes in the discount rate affect not only the magnitude of the measured changes, but also the ranking of policies using that metric. The authors illustrate this problem in the context of neutral Social Security reforms. By construction, these policies do not change allocations; hence, they also do not change welfare. However, depending on the choice of the discount rate, one could reach different (and possibly opposite) conclusions regarding the desirability of such policies.

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