This paper analyses the trade-off between the incentive effects of increased uncertainty and the welfare benefits of risk-sharing in the design of optimal tax schedules. We use numerical methods to characterise the tax schedule and to give comparative static results of changing risk aversion,...

We study optimal nonlinear income taxation when earnings can differ because of both ability and luck, so the income tax has both a redistributive role and an insurance role. A substantial literature on optimal redistribution in the absence of uncertainty has evolved since Mirrlees' original...

Should the realized risk premium be taxed or not? In a simple two asset portfolio model we analyze the optimal taxation rule when the economy faces aggregate risk. We show in an appropriate designed tax system, that the risk premium of the risky asset should be fully taxed if the households are...

We show in a two-period world with endogenous savings and two assets, one of them exhibiting a stochastic return that an interest adjusted income tax is optimal. This tax leaves a safe component of interest income tax free and taxes the excess return with a special tax rate. There is no trade...