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Social discounting and the equity premium

Spackman, Michael (2021) Social discounting and the equity premium. Grantham Research Institute on Climate Change and the Environment Working Paper, 358. Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science, London, UK.

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There has been a forty-year divide in economics on the relevance to public funding of the equity premium (in particular, today, the consumption CAPM). The costs and benefits of public spending are often correlated with income, but conventional neoclassical analysis, applied by many governments, suggests that the cost of this systematic risk in publicly funded activities is usually trivial. On the other hand, it is often asserted that equity market premiums, which are very much higher than would be estimated from neoclassical analysis (the equity premium ‘puzzle’), should apply also to public funding. This paper, which aims largely to help government administrations, assembles a picture of the evolving research on and understanding of the premium. Public funding does incur social costs arising from the associated tax burden. There is, however, no evidence to support assertions that the equity risk premium anomaly is relevant to public funding. In any case, the cost of systematic risk in the benefits of public funding does not fall as an annual percentage rate to financiers, but as an absolute cost to public service beneficiaries.

Item Type: Monograph (Working Paper)
Official URL:
Additional Information: © 2021 The Author
Divisions: Geography & Environment
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HJ Public Finance
G Geography. Anthropology. Recreation > GE Environmental Sciences
Date Deposited: 29 Jul 2021 08:06
Last Modified: 16 May 2024 12:22

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