Many economists hold that keeping taxes low helps to spur economic

Many economists hold that keeping taxes low helps to spur economic growth, and that low taxes thus lead to greater national prosperity. But Country X, which has unusually high taxes, has greater per-capita income than the neighboring Country Y, which has much lower taxes. Some politicians have concluded from this that high taxes do not hinder national prosperity.
The politicians' reasoning is most vulnerable to criticism on which of the following grounds?

Premise: Two countries are with different rates of taxes are compared. Nothing as such is discussed further about the two countries except the fact that the finding is opposite to what many economists believe.
Conclusion: Politicians based on the finding reason that higher taxes don't hinder national prosperity.

A) It overlooks the possibility that even if Country X reduced its taxes, it would not experience greater national prosperity in the long term. - WRONG. What happens in future is not relevant to the argument here.

B) It confuses a claim that a factor does not hinder a given development with the claim that the same factor promotes that development. - WRONG. This is a worthy contender. But, second part of this option is debatable - other factors might be behind development. Also the sole factor discussed doesn't lead to development.

C) It fails to adequately address the possibility that Country X and Country Y differ in relevant respects other than taxation. - CORRECT. Politicians falter for simply claiming without assessing other possibilities. They also without bothering why the finding was opposite to economists' thesis made a claim.

D) It fails to take into account that the per-capita income of a country does not determine its rate of economic growth. - WRONG. Determining the economic growth is not required. Out of scope.

E) It assumes that the economists' thesis must be correct despite a clear counterexample to that thesis. - WRONG. It can't be inferred that politicians take economists' thesis as correct.

CR55190.02

IMO Answer C.

Many economists hold that keeping taxes low helps to spur economic growth, and that low taxes thus lead to greater national prosperity. But Country X, which has unusually high taxes, has greater per-capita income than the neighboring Country Y, which has much lower taxes. Some politicians have concluded from this that high taxes do not hinder national prosperity.

The politicians' reasoning is most vulnerable to criticism on which of the following grounds?


A) It overlooks the possibility that even if Country X reduced its taxes, it would not experience greater national prosperity in the long term. -- Current tax structure and national prosperity is being discussed in the passage. Leng-term prosperity is irrelevant

B) It confuses a claim that a factor does not hinder a given development with the claim that the same factor promotes that development. -- Politicians never argued that high tax is cause of country X's prosperity. Wrong inference.

C) It fails to adequately address the possibility that Country X and Country Y differ in relevant respects other than taxation. -- CORRECT, the politicians are not taking other variables for Country X's national prosperity into account and are just focusing on one aspect of the economy.

D) It fails to take into account that the per-capita income of a country does not determine its rate of economic growth. -- Although it could be true, the politicians are not basing their conclusion on per-capita income, rather on high-taxation

E) It assumes that the economists' thesis must be correct despite a clear counterexample to that thesis. -- Economists' theory doesn't take high taxation into account. We can't infer the counterexample from their theory.

To better understand the flaw in the original argument, let's examine the following analogous argument:
Reducing advertising expenses helps increase profits. But Company X, which spends HUGE AMOUNTS of money on advertising, has greater profits than Company Y, which spends almost nothing on advertising. Some business professionals have concluded from this that spending a lot of money on advertising does not reduce profits.
This argument incorrectly assumes that reducing advertising expenses is THE ONLY WAY to increase profits, but we all know that we can also increase profits by increasing revenue.


The same applies to the original argument.
It incorrectly assumes that having low taxes is the ONLY WAY to increase per-capita income, when there are other things that can increase per-capita income.
For example, it could be the case that Country X sits on the world's largest deposit of gold and Country Y has no natural resources, in which case Country X can't help but have a higher per-capita income, regardless of its tax rate.

For this reason, the correct answer is C.

1: low taxes ==> economic growth
2. Low taxes == > national prosperity

3. Higher taxes has high GDP ( no relation known in statement)


Conclusion: high taxes ==> national prosperity ( 1+2+3)

4. What is difference between X and Y?
Given is about high per capita income in high taxes country AND low per capita income in low taxes country.

Gap Analysis: If we find some hint that high taxes and per capita income has no direct relationship then we can weaken or strengthen the conclusion.
Weaken: high GDP is due to high taxes and thus overall economy can be improved

Why not answer optionD?
It fails to take into account that the per-capita income of a country does not determine its rate of economic growth.
>> Conclusion is based without knowing further information about any relationship as mentioned in statement 3.
Knowing this relationship can help us to strengthen or weaken the conclusion.

WHY NOT ANSWER D as knowing the relationship between taxes and per capita income is important to reach a conclusion.


WHY C option?

In option C: It fails to adequately address the possibility that Country X and Country Y differ in relevant respects other than taxation.
(Fundamentals are still same: low taxes could mean high economic growth (even overall economy could be higher or lower)
The relationship on taxation with national prosperity (economic growth) in between X and Y OR per capita with tax is not clearly defined.


Pleas help to differentiate between C and D
BrentGMATPrepNow GMATNinja AjiteshArun VeritasKarishma

Low taxes spur economic growth. (So if a country lowers its taxes, it is expected that its economic growth will increase (from its previous value) and hence will lead to greater prosperity from its initial value. The point is that the comparison is between the same country - before lower taxes and after lower taxes. You cannot compare two countries based on their taxation alone.)

X has high taxes but greater per capita income (showing greater prosperity) than Y.

Politicians' conclusion: High taxes do not hinder national prosperity.

Note that this is an incorrect comparison. You cannot compare country X's prosperity to country Y's. Lower taxes spur economic growth in the same economy. They do not impact neighbouring countries.
So the argument fails to address the other differences in X and Y which could lead to different levels of prosperity.

Answer (C)

D) It fails to take into account that the per-capita income of a country does not determine its rate of economic growth.

The argument implies that economic growth increases per capita income. Whether it is actually the case is irrelevant. The two countries are anyway not comparable and the argument fails there itself. Then, whether per capita income determines national growth or not is irrelevant to our argument.

In some cases, we find that because X and Y may not have same relevant conditions so we can not determine the same outcome. ( as in above question) - not relevant as both subjects could have differences.

However in some case, it is mentioned that even X and Y may not have same relevant conditions but it gives a reasoning to think that it may happen. ( as in below question)- a general consideration


C : this is an example where the generalized conclusion is countered.

As in questions it is always asked MOST weaken or MOST strengthen , Is there any way that we can differentiate when to consider that X and Y may bring the same output and in what cases it should not be considered as general consideration.

You are missing a big point even before we talk about generalisations and specifications.

When a volcano erupts in region A, region A's temperature reduces as compared to the previous temp of region A.
Would you say that region A's temperature is still higher than region B's temperature and that is why the generalisation does not hold?
No, right. Temperature of a place depends on a 1000 factors. Region A's and B's temp are not comparable. You are only comparing region A's temp with its own previous temp. Here, Europe's temp is compared with Europe's previous temp. The same rule applied to El Chichon (comparing temp of the region with its OWN temp previously) says that the generalisation does not hold. So this is valid.

Similarly, lowering taxes can improve country X's economy but it may still be worse than the economy of many other countries. You cannot compare economies of diff countries on the basis on taxation alone. If we were given that country C's economy worsened after lowering taxes, then that would be against the given theory of the economists.

For (C) can we also say that 'per-capita' depends on population, so it is quite possible that the country with higher per-capita income has much smaller population. Will this line of reasoning be correct to chose C ?

This may be getting too much into the weeds of econometrics. But you're right: the population is certainly a way that Country X and Country Y may differ, so it's worth consideration. And you're right that the population of each country will affect their per-capita incomes. Country Y could have "greater national prosperity" but a lower per-capita income due to a larger population.

However, a word of caution is probably in order. We don't know whether the populations of the two countries are different or equal. And there's no answer choice that specifically addresses the issue of population. So it probably isn't the best use of our time and brain cells to think through the econometric equations going on here. It's better to think of population as being just one of any number of possible ways that the two countries may differ. Other reasons might be natural resources, education levels, infrastructure quality, investment levels, or countless other reasons. Population isn't any more special than any of these other reasons.

The politicians fail to take all of these factors into account, which is why (C) is the correct answer.

I hope that helps!

Hi experts GMATNinja avigutman IanStewart AjiteshArun

I could see why the option (C) is the correct answer, but I am confused with the option (D). I've checked all previous posts in this thread and decided to write my own post. I think that the politicians have done something incorrectly with the statistics. Could you help me check my line of thinking or share your thoughts on (D) when you have time?

Stimulus: Many economists hold that keeping taxes low helps to spur economic growth, and that low taxes thus lead to greater national prosperity. But Country X, which has unusually high taxes, has greater per-capita income than the neighboring Country Y, which has much lower taxes. Some politicians have concluded from this that high taxes do not hinder national prosperity.

My first reaction after reading the argument was that the growth rate is conflated with the per-capital income. The economists talk about the growth rate and link the gauge to an abstract concept "national prosperity," while the politicians use another gauge, per-capital income, to try to connect it with the same concept. The two gauges are not interchangeable--one country with a high growth rate does not necessarily have a high per-capita income, and one country with a comparatively high per-capital income might have reported almost-zero economic growth for years. Such countries exist in the real world.

I am not sure whether GMAT tests this difference in the two gauges--I am only sure that it tests total consumption vs per-capita consumption, absolute increase vs increase rate, sales vs marketing share, and so on. But this discrepancy in the two gauges was so glaring to me that I immediately checked whether there would be an option saying that the politicians have confused the two statistics. But I only found option (D), whose phrasing is a bit puzzling to me.

D) It [the politicians' reasoning] fails to take into account that the per-capita income of a country does not determine its rate of economic growth.

I think that the politicians have failed to consider that the two gauges are not the same. So, if option (D) were written this way, it could be a contender in my opinion. If Country X has greater per-capital income than County Y but has reported an economic recession, it might be suspicious to infer that high taxes do not hinder national prosperity.

But, the option (D) says that the politicians have failed to consider that a country's per-capita income does not determine the country's rate of economic growth. Is (D) incorrect because the politicians actually never mentioned the growth rate in their reasoning? They did not link the per-capital income to the growth rate (and then to the national prosperity). They just linked the per-capita income directly to the national propensity. So, they did not make the error stated by (D)?

In other words, if the politicians had concluded that high taxes do not hinder economic growth and thus do not prevent national prosperity, would the option (D) have been correct?

*
I hope to draw an analogy to confirm the logic behind: Guidebooks say that renting a tuktuk (a modified scooter) will help tourist go to different temples in Angkor Wat more quickly and thus their traveling experience will be more pleasant. But a tourist who rented and rode a bicycle saw more temples in a day than another tourist who rented a tuktuk. Some people concluded that renting a bicycle will not prevent tourists from having a pleasant traveling experience.

We can say that these people ignore the time spent on traffic and use another factor--the number of temples seen--to arrive at the abstract concept "a pleasant traveling experience." But we cannot not criticize them for failing to consider that the number of temple seen does not determine the time spent on traffic, as they completely ignore the time factor in their reasoning, right?

Thank you so much!

Hi GraceSCKao, my short answer for you is: yes, you are exactly right.
The economists' claim is a distraction here, and (D) is meant to trap those who get distracted by it.
After all, the politicians' reasoning doesn't address the economists' claim in any way. To evaluate the politicians' reasoning we can just look at this part of the passage:
Country X, which has unusually high taxes, has greater per-capita income than the neighboring Country Y, which has much lower taxes. Some politicians have concluded from this that high taxes do not hinder national prosperity.

Edited to add:
The author's use of the word "but" (first word of second sentence) is very interesting. His or her decision to use that word implies a connection between economic growth and per-capita income. That's an assumption that the author is making, and, separately, the politicians are making the assumption that per-capita income is correlated with national prosperity (that assumption is hiding in the words "politicians have concluded from this.)"

A) It overlooks the possibility that even if Country X reduced its taxes, it would not experience greater national prosperity in the long term.
Wrong: It's in the same direction as the politicians. Here it says low taxes doesn’t mean prosperity. Politicians say high taxes don’t stop prosperity. 2 sides of same coin.
B) It confuses a claim that a factor does not hinder a given development with the claim that the same factor promotes that development.
Wrong: Politicians do believe that the claim doesn’t hinder development.
C) It fails to adequately address the possibility that Country X and Country Y differ in relevant respects other than taxation.
Correct: the background/premise may have been true for same country. Between 2 countries there may be other factors.
When an option claiming the objects of comparison are different. We should look back to see if the premise was clear that they do apply for different objects.
D) It fails to take into account that the per-capita income of a country does not determine its rate of economic growth.
Wrong: there is implication that high per capita might indicate economic growth and thereby prosperity. But, here DETERMINE and RATE are overly constraining and they were never mentioned.
E) It assumes that the economists' thesis must be correct despite a clear counterexample to that thesis.
Wrong: There was never a thesis. Also theory of economists are held as false by politicians.­

MartyMurray Can you please explain why option D is wrong ?