facing uninsurable idiosyncratic labor income risk. The Ramsey government internalizes the general equilibrium feedback of … optimal aggregate saving rate is independent of income risk. The optimal time-invariant tax on capital is increasing in income … risk. Its sign depends on the extent of risk and on the Pareto weight of future generations. If the Ramsey tax rate that …

productivity and aggregate business cycle risk. We show analytically that the whole welfare benefit from joint insurance against … both risks is greater than the sum of benefits from insurance against the isolated risk components. One reason is the … convexity of the welfare gain in total risk. The other reason is a direct risk interaction which amplifies the utility losses …

We extend the canonical income process with persistent and transitory risk to shock distributions with left …-skewness and excess kurtosis, to which we refer as higher-order risk. We estimate our extended income process by GMM for household … show that in a standard incomplete-markets life-cycle model, first, higher-order risk has sizable welfare implications …