A social discount rate for Italy

Because of the budgetary constraints imposed by the Stability and Growth Pact, the need for cost and benefit evaluation of public investment has become increasingly relevant. In a cost-benefit analysis framework, the definition of the social discount rate is key to the selection of projects and programmes on the basis of their socio-economic return. To this extent, the Italian Ministry of the Economy has passively adopted the 5% rate proposed by the European Commission to evaluate projects financed by Structural Funds. In this article, we estimate a social discount rate for Italy, finding that a 3.7-3.8 rate would be appropriate, thus 1.2-1.3% lower than the official one.