We develop a model which accounts for the observed equity premium and average risk free rate, without implying counterfactually high risk aversion. The model also does well in accounting for business cycle phenomena.

The volume collects the essays presented at the 15th Workshop on Public Finance organised by Banca d'Italia in Perugia from 4 to 6 April 2013. The workshop focused on the link between fiscal policy and macroeconomic imbalances and comprised four sessions. The first session concentrated on the...