Essays in Macroeconomics

Abstract

This dissertation consists of three chapters. The first two chapters are related to oligopolistic competition and industry life cycles. The third chapter studies optimal taxation in the macro economy. The first chapter studies drivers of industry dynamics. I focus on a setup in which two potential firms compete to grow, and I study what drives the divergence of the two firms in terms of size. Two factors are identified: (1) increasing returns to scale technology in business expansion and (2) capacity constraints in production. In the second chapter, Erzo Luttmer and I establish a welfare theorem in a model of long-run growth with a growing measure of industries and discrete numbers of differentiated goods within each industry. Under several common assumptions, the economy achieves its efficiency when each industry is monopolized. The third chapter is part of a large project joint with Anmol Bhandari, David Evans, and Ellen McGrattan. This chapter studies optimal labor tax reform in a dynamic general equilibrium economy with uninsurable idiosyncratic risk. Different from many existing studies, in this work, the labor tax schedule is a piecewise linear tax function. The reform also takes into account the resulting transition dynamics of a reform. Our optimal labor tax schedule shows progressivity for high earners in terms of a marginal tax and is otherwise flat.