Public debt can be optimal in standard incomplete market models with infinitely lived agents, since the associated capital crowd-out induces a higher interest rate. The higher interest rate encourages individuals to save and, hence, better self-insure against idiosyncratic labor earnings risk....

We propose a novel approach to estimate household income uncertainty at various future horizons and characterize how the estimated uncertainty evolves over the life cycle. We measure income uncertainty as the variance of linear forecast errors conditional on information available to households...