As displayed in Table 2, country-specific annual real income growth rates are applied in the OECD project. These numbers are derived from the OECD _Medium-term Baseline_ , which is prepared by the OECD Economics Directorate, based on historical data and short-term projections, and extended to the medium term based on assumptions about the growth of potential output in each country.<sup>8</sup>

**Table 2. Annual real income growth rate, discount rate and remaining working years in OECD project**

||CAN|FRA|ISR|ITA|KOR|NLD|NZL|NOR|POL|ROU|ESP|GBR|USA|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Annual real<br>income growth<br>rate (%)|1.39|2.18|1.32|2.29|3.98|1.23|0.77|1.82|3.04|1.32|2.78|2.14|1.30|
|Annual real<br>discount rate<br>(%)|4.58|4.58|4.58|4.58|4.58|4.58|4.58|4.58|4.58|4.58|4.58|4.58|4.58|
|Remaining<br>working years|26.1|26.1|28.9|25.1|27.5|25.2|26.8|25.8|27.1|27.5|26.4|26.0|26.6|
|Source: Liu (20|11).|||||||||||||

As illustrated in Annex II, the effective discount rate used in the calculation of human capital depends on the ratio of (1+ annual real income growth rate) to (1+ annual real discount rate). Owing to a lack of either theoretical or empirical evidence, the OECD work for human capital estimation uses a uniform rate of 4.58% for all countries to discount expected future earnings.<sup>9</sup> This implies that the effective discount rate differs across countries, reflecting the different pace of growth of future labor income.

While a high income growth rate substantially raises the present value of future earnings, resulting in much higher estimates of human capital, the opposite is true for a high discount rate. A number of studies that have applied the lifetime income approach to measuring human capital have found that the estimated stock values are very sensitive to the choice of these rates (e.g. Wei, 2004; Gu and Wong, 2008; Liu and Greaker, 2009; Liu, 2011; World Bank, 2011 Chapter 6). Some national studies have simply chosen the same parameters as used by the original Jorgenson and Fraumeni study for the United States (e.g. Ahlroth _et. al_ . (1997) for Sweden; Wei (2004) for Australia). And the discount rate used can be as low as 3.5% in the case of Norway (Ervik et al, 2003; Liu and Greaker, 2009) and as high as 8.26% in the case of China (World Bank, 2011 Chapter 6).

Questions can also be raised about whether or not these parameters should be set the same across countries and/or over time. As noted, the OECD project applied a uniform discount rate (Liu, 2011), and Arrow _et al._ (2012) apply a discount rate of 8.5% for measuring human capital for the United States, China, Brazil, India and Venezuela that are apparently heterogeneous in many aspects.

Within the World Bank’s wealth accounting framework, a uniform discount rate of 4% is used to estimate the stock value of natural resources across countries and across resource types. As outlined in Annex I, the World Bank measures total wealth as the present value of future consumption, with the discount rate _r_ derived from the Ramsey formula: 8. To be precise, the country-specific value of annual real income growth rate that is assumed to prevail over the future working life of working age people is calculated as the geometric mean of the real growth rate of wages and salaries per employee over the period of 1960 – 2017.

9. The discount rate of 4.58% was originally used by Jorgenson and Fraumeni (1992a) and corresponded to their estimates of the long-run rate of return for the private sector of the economy in the United States.

8