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When a city experiences a sharp decline in population, the city's tax

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Re: When a city experiences a sharp decline in population, the city's tax  [#permalink]

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New post 02 Dec 2017, 04:47
Vineetk wrote:
When a city experiences a sharp decline in population, the city's tax revenues, which pay for such city services as police protection and maintenance of water lines, also decrease. The area to be policed and the number and length of the water lines to be maintained, however, do not decrease. Attempting to make up the tax revenue lost by raising tax rates is not feasible, since higher tax rates would cause even more residents to leave.


The information given most strongly supports which of the following general claims?

A. If, in a city with sharply declining population, police protection and water line maintenance do not deteriorate, some other service previously provided by the city will deteriorate or be eliminated.
the given statements tell us that, with a smaller population, there will be less tax money available. if we spend the SAME amount of tax money on policing and water-line maintenance, then, less tax revenue will be available for everything else.

this implies choice A.


B. If a city's tax rates are held stable over a period of time, neither the population nor the levels of city services provided will tend to decline over that period.
the passage gives no support to this idea.
in fact, the passage supports the idea that population declines can just happen -- without ANY meaningful relation to tax rates. (the passage starts with "When a city experiences a sharp decline in population..." -- thus implying this is something that can just occur, without regard to what tax rates are doing at the time.)

Also, you can eliminate this choice just by pure common sense: it's a totally ridiculous statement in the real world. (obviously, just keeping tax rates constant isn't going to stop people from moving out of a city!).


C. If a city's population declines sharply, police protection and water line maintenance are the services that deteriorate most immediately and most markedly.
Nope. Also, MOST is a very strong word for INFERENCE Questions. Even here in this choice its too strong AND also the passage gives no support to this idea.

D. A city that suffers revenue losses because of a sharp decline in population can make up some of the lost tax revenue by raising tax rates, provided the city's tax rates are low in relation to those of other cities.
Not relevant/out of scope
E. A city that is losing residents because tax rates are perceived as too high by those residents can reverse this population trend by bringing its tax rates down to a more moderate level.
choice E should be a quick elimination, because choice E deals with a situation that is completely unrelated to anything described in any of the existing statements.
i.e., choice E describes a situation in which people CURRENTLY PERCEIVE tax rates as "too high". none of the existing choices deals with any such situation.
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Re: When a city experiences a sharp decline in population, the city's tax  [#permalink]

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New post 20 Mar 2019, 21:29
VeritasKarishma GMATNinja

"A city that suffers revenue losses because of a sharp decline in population can make up some of the lost tax revenue by raising tax rates, provided the city's tax rates are low in relation to those of other cities."

I have read all the post still not convinced why D is wrong.

Say the tax rate is increased. But the increased tax rate is still lesser than other cities (so I thought residents will not leave because the tax rates are still low). Now with the increased tax rate, isn't it sure that the city would make up revenue greater than when the tax rates were not increased? Though it may not cover all the lost revenue by the decrease in population, it would make up at least partial revenue with an increase in tax rates.

Let the city have 50 people after 50 people left the city.Let the tax rate be 10%. Let the income be 1000.
So before the increase in tax rates the tax revenue is 50*1000*10%.

Now if the tax rates are increased by X%. The net tax rate is 10+x % which is lower than in other cities
So tax revenue collected is 50*1000*(10+x)
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Re: When a city experiences a sharp decline in population, the city's tax  [#permalink]

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New post 21 Mar 2019, 06:57
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mallya12 wrote:
VeritasKarishma GMATNinja

"A city that suffers revenue losses because of a sharp decline in population can make up some of the lost tax revenue by raising tax rates, provided the city's tax rates are low in relation to those of other cities."

I have read all the post still not convinced why D is wrong.

Say the tax rate is increased. But the increased tax rate is still lesser than other cities (so I thought residents will not leave because the tax rates are still low). Now with the increased tax rate, isn't it sure that the city would make up revenue greater than when the tax rates were not increased? Though it may not cover all the lost revenue by the decrease in population, it would make up at least partial revenue with an increase in tax rates.

Let the city have 50 people after 50 people left the city.Let the tax rate be 10%. Let the income be 1000.
So before the increase in tax rates the tax revenue is 50*1000*10%.

Now if the tax rates are increased by X%. The net tax rate is 10+x % which is lower than in other cities
So tax revenue collected is 50*1000*(10+x)


The highlighted part above is a problem.

Say I live in city A with has moderate air quality and tax rate of 20%.
Say there is another city B with good air quality and tax rate of 25%.

Now what happens if city A increases tax rate to 23%? I may start thinking about leaving and going to city B. A 5% differential was making sense in my finances. A 2% differential may not be good enough for me to bear moderate air quality.

We don't know the basis on which people decide to move. We just know that raising tax rates cannot make up the loss in revenue and that is all.
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Re: When a city experiences a sharp decline in population, the city's tax   [#permalink] 21 Mar 2019, 06:57

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