Economist: Currently, many countries rely primarily on taxing income to fund government expenditures. But taxing inco...

shunhe on July 7, 2020

Hi @Sheikhd,

Thanks for the question! Let’s take a look at the stimulus here real quick. We’re told that countries tax income for the most part. But taxing income doesn’t promote savings and investment. But taxing consumption does encourage savings. And the only way to improve economies is to increase savings rates.

Now we’re asked to complete the argument. (B) says that we should complete the argument with “therefore, the economies of countries will rapidly improve if their governments adopt tax policies that encourage savings and investment.” Remember, whatever we pick to complete the argument has to follow from the rest of the argument. And there’s a number of problems with (B). First of all, it’s too strongly worded because we’re not told anything about how fast an improvement would be, so the word “rapidly” isn’t supported by anything. Also, (B) tells us

Tax policies encourage savings —> Economies improve

But the stimulus actually tells us (right before the word hence)

Savings rates —> Improve economies

So (B) has the logic backwards and can’t be right.

Hope this helps! Feel free to ask any other questions that you might have.