Essays On Macroeconomics

This dissertation consists of two chapters. In the first chapter, we propose a protocol of repeated bargaining where occasional periods of increased outside opportunities yield improved outcomes but also higher breakout probabilities, yet there is a lot of risk sharing. Crucially, we only look at the Markov perfect equilibria which dispenses us from both having non payoff relevant state variables that are costly to compute nor contrived process of equilibrium selection. Using the negotiation protocol proposed in the first chapter, I study the welfare-maximizing income tax progressivity when married couples file jointly as is the U.S. income tax system. To see how progressive income tax impacts household formation and intra-household allocations, I construct a life-cycle model to study how changes in tax policy affect labor supply --- especially those of secondary earners in married households --- and household formation/dissolution. Married households make allocation decisions jointly without being able to commit future arrangements. With this model, I find the sensitivity of the marriage patterns to the tax code: changing tax unit from a household to an individual increases the number of married households by 3\%, mainly via a reduction of the marriage age coming from reduced rewards to search for advantageous tax partners. I also consider the same policy reform but abstracting the responses of marriage/divorce decisions and intra-household sharing rules to show how those are quantitatively important. We then use the model to compute the optimal income tax progressivity that maximizes welfare under two scenarios; (i) married couples filing jointly and (ii) individual taxation. In Scenario (i), the optimal progressivity for married couples is lower. At the same time, that of singles is slightly higher than the current U.S. tax code. In comparison, the optimal progressivity in Scenario (ii) is much higher than the current U.S. single income tax schedule