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Taxation, risk-taking and growth: a continuous-time stochastic general equilibrium analysis with labor-leisure choice.

By Turalay Kenc


NoThis paper investigates the equilibrium relationship between taxation, portfolio choice (risk-taking) and capital accumulation. Specifically, it examines how taxes affect risk-taking and capital accumulation. We extend the existing literature by relaxing two crucial assumptions in modelling risk-taking behavior: (i) that the investment opportunity set is fixed and (ii) that there is no distinction between attitudes towards risk and behavior towards intertemporal substitution. We extend the investment opportunity set of individuals through optimally determined human capital; and distinguish intertemporal substitution from attitudes towards risk via a recursive utility function. In the presence of these extensions, the paper successfully derives a closed-form solution to the stochastic growth model with stochastic wage income

Topics: Risk-taking, Capital and labor income taxation, Recursive utility, Labor flexibility
Year: 2004
DOI identifier: 10.1016/J.JEDC.2003.10.001
OAI identifier:
Provided by: Bradford Scholars
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