facing uninsurable idiosyncratic labor income risk. The Ramsey government internalizes the general equilibrium effects of … aggregate saving rate that is independent of income risk, whereas the optimal time-invariant tax on capital implementing this … saving rate is increasing in income risk. The optimal saving rate is constant along the transition and its sign depends on …

We extend the canonical income process with persistent and tran- sitory risk to cyclical shock distributions with left … dispersion and left-skewness. We then show that in a standard incomplete-markets life-cycle model, first, higher- order risk has … sizable welfare implications, which depend on risk atti- tudes; second, it matters quantitatively for the welfare costs of …