Imagine a 2 period wealth maximization game. In period one, consumers receive unitless endowment N and can choose to use that endowment to consume, invest (at some interest rate i) or do nothing. In period 2, consumers choose to consume or do nothing, payoffs are made, and the game ends. We can introduce an exogenous income tax on investments, and an exogenous sales tax on consumption and utilize Monte Carlo simulations to do comparative analysis on different regime states to analyze the hypothesis that taxation of income retards stimulative investment and that a sales tax mechanism is preferable to maximize economic growth.
The basic design seems sound to me. . But flaws are not always obvious. Thoughts?
Ducks and Economics 