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Risk-taking, fiscal policies, asset pricing, and stochastic growth with the spirit of capitalism

Gong, Liutang and Zou, Heng-fu (2012): Risk-taking, fiscal policies, asset pricing, and stochastic growth with the spirit of capitalism.

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Abstract

In this paper, we study risk-taking, fiscal policies, and asset pricing in a stochastic model of growth with non-expected utility function and the spirit of capitalism. With specific assumptions on the production technology, preferences, and stochastic shocks, we derive the explicit solutions to the growth rates of consumption and savings and equilibrium returns on all assets. Finally, we give the effects of fiscal policies, the spirit of capitalism, and stochastic shocks on growth, asset pricing, and welfare.

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