#21 - Finance minister: The World Bank’s “Doing Business”

[Administrator]

Please post your questions below!

[sherrilynm]

Are we allowed to discuss questions yet?

If so, I am BAFFLED by this one! Can someone please explain what's going on here?

[lathlee]

I agree with sherrilynm, this Q, correct answer D) Variance Test doesn't really work, i thought B) works much better.

[Adam Tyson]

Hey guys, let me see if I can help you both! In order to see if the author's claim about doing better on next year's report is reasonable, we should be asking ourselves whether the small and medium sized businesses in the author's country are comparable to the businesses covered by the report. If they are, then the claim makes sense and seems to be supported; if they are not, then the claim is weakened.

So, if the medium sized businesses in the finance minister's country ARE smaller than the businesses in the report, then making business easier for those businesses won't have any impact on the country's standings in the report. The affected businesses would be too small to matter. If, on the other hand, the medium sized businesses in the finance minister's country are at least as large as the businesses covered by the report (NOT smaller), then the report would be applicable to those businesses, and the argument would be strengthened. That's what you want to see when you apply the Variance Test!

Whether compliance with the new laws been better than with the older laws or not has no impact on whether they will improve their standing on the Doing Business report next year. We need to know whether the simplified tax laws will impact the rankings or not, and those rankings are based on the ease of doing business and have nothing to do with whether businesses take advantage of that ease or comply with the laws, but only whether they could easily do so.

I hope that clears things up! This was a tough one!

[Jon Denning]

Hi sherrilynm and lathlee!

We can absolutely discuss questions from June, provided none of us post the question text

So let's see if we can figure out #21 here!

This is a supremely rare question type called Evaluate the Argument, so first things first let me explain what this type is asking and how we can find the correct answer.

Evaluate questions present an argument in the stimulus that fails to be entirely convincing due to some missing or unknown piece of additional information, and the correct answer will either provide that critical piece of knowledge, or present a question the answer to which would give you that necessary info. So like all arguments on the LSAT it pays to be skeptical, and to think about why the author's conclusion could be incorrect! Then to test answers you vary your stance on them—so if an answer asks a "yes or no" type question, you'd test both "yes" and "no"—and see if your opinion of the author's belief changes as your position (your response to the question asked) changes. If so, that's the right answer!

The argument we get in #21 is that the finance minister's country's Doing Business ranking will probably improve, because the government has made filing taxes for small and midsize businesses easier since the last report/rankings came out. Which may sound reasonable at first glance, but there are some holes in that belief! To name a couple:

We don't know what's happened in the country regarding businesses' ability to comply with regulations
(the other component in the rankings), and how compliance is weighted in the rankings

We don't know if small and midsized businesses qualify as one of the "hypothetical businesses" the World
Bank considers in creating the rankings report

We don't know when the next report will be produced and whether the simplified tax filing process will
still exist at that point

So with that degree of uncertainty it's impossible to accept the argument as given. What we'd want to occur if we were looking to improve the argument, or at least make a more informed analysis of its likelihood, is to supply one or more of those pieces of information.

That is, if we knew in response to the first piece I listed above—the compliance part—that compliance with regulations had gotten more difficult, and that compliance was a far more important factor than ease of paying taxes, then it would be reasonable to think this argument is flawed and the country's ranking could actually drop, not improve. So that's a genuinely valuable thing to know, and could serve as the correct answer here, as something like "Has complying with regulations gotten more difficult since the last report?" If the answer is no the conclusion here is better; if the answer is yes then the conclusion seems far less likely (i.e. is worse).

The correct answer, choice D, relates to the second unknown I mention above: do the businesses for which tax filing has been simplified qualify for inclusion in the report/ranking process or not?

Consider the two opposing answers to that question, and what each would do to our opinion of the conclusion:

"Yes": The businesses mentioned ARE smaller than the hypothetical business used to produce the
report. That means the author's conclusion is based on changes that have no bearing on the ranking
process, and is thus a poor argument.

"No": The businesses mentioned are NOT smaller than the hypothetical business used to produce the
report. That means the author's conclusion is based on changes that are relevant to the ranking
process, and is thus a more reasonable argument.

Since testing the two opposite answers to the question posed in D significantly changes our opinion of the author's conclusion, D is the answer that most helps us evaluate the argument.

Note too that this same test applied to the other four answers does nothing to the likelihood of the conclusion, so we can both confirm D's importance and dismiss the other options as irrelevant, all with the same approach!

I'll show you what I mean by analyzing B, which is one that seems to be under some scrutiny here:

"Yes": Compliance by small and midsized businesses HAS increased since tax filing was simplified.

"No": Compliance by small and midsized businesses has NOT increased since tax filing was simplified.

Neither of these matter for the argument for (at least) two reasons: (1) the timing needs to be based on the last ranking report and whether things have changed since then, not since the tax filing change (even if it hasn't changed since the tax filing it could still have changed since the last report, so saying "No" here doesn't necessarily matter at all); (2) more crucially, the rankings are based on "how difficult it is for a business to comply," NOT the frequency with which businesses actually do comply! So whether actual compliance has increased or not isn't the point...we merely need to know how difficult it is to comply and if that difficulty has increased or decreased. So B is something of a shell game trap in that sense: actual compliance is not at all the same as ease of compliance!

I hope that helps!

[lathlee]

thx adam and Jon, you guys's explanation helped tremendously

[Khodi7531]

I went with C on this one. I looked at the reasoning the argument uses... "dramatically simplified tax filing for small and even mid sized business" and thought the "more difficult" in C would be justified and help evaluate the argument. If it is more difficult to comply then would the ranking improve? And if it is more difficult how much can be simplified? A little, a lot?


Feel like C definitely deserved some attention although I see why D is correct. Having a hard time getting rid of C.

[apleigh123]

I also picked "C". Can someone explain why the size of the business matters? My logic was maybe the country is comprised of
say 90% small and medium businesses so it would raise their ranking by simplifying the tax filing.

[Jonathan Evans]

Hi, Apleigh and Khodi!

Good questions!

You are correct that the information obtained from the question in answer choice (C) could be helpful. Maybe compliance with tax filing is more difficult than other regulations. Maybe tax filing is not more difficult. Either way, we might get a sense of the kind of difference such changes could make in the "Doing Business" ranking.

However, there's a problem. First, given improvement in some area used to create the "Doing Business" ranking, we can reasonably conclude that the ranking will probably improve. In other words, whether or not the tax filing is harder or easier than some other regulation, if we improve one area, we can probably expect a rankings improvement.

The second issue is that we have still left undetermined whether we care about these small- and medium-sized businesses at all. What if the "Doing Business" rankings ignore these businesses? What if the "Doing Business" rankings only pay attention to big businesses?

This is the crux of our issue here. We need to know whether the government's efforts will make any difference at all. Consider the two answers to the Variance Test™ to answer choice (D):

• The midsized businesses are smaller than those used to make the "Doing Business" report. In this scenario, we cannot expect the rankings to improve because the report doesn't consider these businesses.
• The midsized businesses are not smaller than those used to make the "Doing Business" report. The report at least considers these midsized busnesses. In this case, we can expect lessening regulatory burden on these businesses to make a difference in the ranking.

Thus, answer choice (D) is more helpful than is answer choice (C).

I hope this helps!

[gcs4v333]

I still don't understand the link between the size of the business and how that's relevant. "In producing the rankings, the World Bank assesses how difficult it is for a hypothetical business to comply with regulations and pay taxes." Not a hypothetical midsize or large business. Just a business. If it had said, "In producing the rankings the World Bank assesses how difficult it is for a hypothetical business of average size to comply..." then I might see where (D) comes into play. As it stands, I'm still confused.

Furthermore, the finance minister touts that their simplification of just one of the two areas that the World Bank looks at. If his country simplified filing taxes for businesses but their regulations create a massive burden in terms of doing business, then it's unlikely that their ranking (relative to other countries) will improve. Maybe their tax filing system was already really simple, they just made some minor tweaks, but the reason they are where they are in the list is due to regulatory overload.

For my money (C) still provides the question that is most relevant to evaluating the argument. What am I missing?