We analyze optimal taxation of labor and capital income in a life-cycle framework with idiosyncratic income risk. We … provide a novel decomposition of labor income tax formulas into a redistribution and an insurance component. The latter is … independent of the social welfare function and determined by the degree of income risk and risk aversion. The optimal linear …

idiosyncratic labor income risk. Ceteris paribus, an individual would prefer to marry a "hedge" (i.e., a spouse whose income is … to agents' income is early, then those who in fact married hedges (and for good reason) are the ones most likely to be … resolution of uncertainty to agents' income is predominantly later, then those who in fact marry hedges will in fact be less …