Demographic changes and social discounting

Abstract

This paper studies social discounting in the context of demographic transitions. We show how changes in population growth and age structure affect the social discount rate, giving rise to a demographic premium: the spread between the discount rate during a transition and that in a stationary environment. The premium is sizable and robust across a range of plausible assumptions about how consumption growth responds to demographic change. It is also larger for less developed and low-income countries, suggesting that long-term policy decisions requiring international cooperation are especially prone to tension and disagreement.