Nonetheless, to maintain consistency with our data source, we have used the higher rate reported by Ibbotson for small cap stock investments and have used a

gross rate of return of 11.5% for such a stock portfolio.

This implies that the appropriate discount rate for future project costs is the gross rate of return. The appropriate discount rate for future project benefits depends on the nature of project outputs.

Given the assumptions in our simple multiperiod framework for project evaluation, (i) future costs should be discounted at the gross rate of return; (ii) for a project that produces outputs that are perfect substitutes to private goods, future benefits should be discounted at the gross rate of return, and benefits can be netted out against costs in the same period; (iii) for a project that produces outputs that are (weakly) separable in the individual utility function, future benefits should be discounted at the net rate of return, and benefits cannot be netted out against costs in the same period; and (iv) government borrowing rate per se has no role to play in discount rate choice.

Between the target and the hypothetical projects, the one with the lower present value of investment stream at the gross rate of return (the discount rate in the government budget constraint) is welfare-dominant.

With this

gross rate of return, the income share in equation 3 is calculated, yielding an estimate of just 1 percent for 1996, i.e., if computer hardware earned a competitive return, it accounted for only about 1 percent of all income generated in the economy in 1996, because the stock of computers is relatively small compared with the size of the overall economy.

The average nominal rate of return consistent with a gross rate of return for the entire 1972-96 period is 36 percent, almost three times the size of the net rate of return for other capital assets.(16) As a result, when it is assumed that the net rate of return to computing equipment exceeds that of other capital assets, the contribution of computing equipment to output growth is 0.45 percentage point.(17)

In any period, the return earned by $1 of computing equipment capital, after depreciation and changes in the price of the equipment have been factored in, is the gross rate of return to computing equipment which can be expressed as

gross rate of return = (i + [[Delta].sub.c] - [P.sub.c].),

If she were to receive a 7% gross rate of return over the next 25 years, she would see her assets grow 5.34% on an after-tax basis each year.

However, if Kim were only to receive a 5% gross rate of return, the assets would only grow at a 3.81% after-tax basis.

Let wages and the marginal productivity of capital (the gross rate of return) be exogenous and.

If, as the consequence of deficits/surpluses in previous periods, the dictator's assets have a positive balance at the end of a period, they will be invested and earn the gross rate of return. On the other hand, if the dictator's assets have a negative balance at the end of a period (the absolute value of which is outstanding public debt), the dictator will pay the gross rate of return on this debt the next period.