The desirability, efficacy, and cost-effectiveness of government welfare policies depend crucially on the income risk … that households face and the actions that they can take to reduce consumption fluctuations, for instance by adjusting their … saving and labor supply. Shocks to labour earnings are a key driver of income risk. A recent literature has documented that …

shock has remained fairly stable. Simulations from a non-linear DSGE model suggest that these empirical results are …