In an economy with a capital income tax distortion, the social discount rate (SDR) should reflect the social opportunity cost of capital rather than the social rate of time preference (consumption rate of interest) to ensure that public investments can produce Pareto improvements. The marginal...

This paper argues that the Foreign Property Rule (FPR), which limits the foreign content of a Registered Savings Plan to no more than 20 percent of book value, should be removed as quickly as possible. Given the globalization of financial markets, the FPR does not protect what it is meant to...

Two comments in this issue of the Journal address our recent article in Volume 2, Issue 2. The fundamental issue with both comments is that they confuse the financial rate of return with the opportunity cost rate of return and therefore advocate for an inappropriate basis on which to calculate...

The intergenerational welfare effects of government deficits are examined in a simple life-cycle economy which can borrow at given interest rates and import at given prices but has unexploited market power in exports. Despite perfect capital market integration, a deficit-financed tax cut to the...

This paper examines the conditions under which the social opportunity cost of capital in a tax distorted economy is equal to the gross of tax return to capital plus the excess of the market over the shadow wage bill. Whenever public investment serves as an unpriced (or underpriced) input in the...

This paper shows that, in an economy with an exogenous rate of return and a given capital income tax distortion, and with lump sum taxes as the marginal tax instrument, the SOC and MCF criteria both correctly identify all worthwhile projects if the criteria are properly applied. The equivalence...