Comprehension : Comprehension

Q 168 / 466

UPSC CSE Prelims 2020

People will invest in education whenever they are granted economic freedom to fully enjoy its benefits. Again, this is for the obvious reason that the return on education increases as the level of economic freedom rises. When people, thanks to lower tax rates, are allowed to retain most of the higher income that they gain from each incremental level of education, it makes eminent sense to invest in education. On the other hand, when the government decides to tax the higher income of educated individuals at even higher rates, it makes very little sense to invest in educating oneself further. The same incentives apply to parents who decide on whether to invest in their children’s education.

With reference to the above passage, the following assumptions have been made:

  1. Lower tax rates in a country invariably translate into greater investments in higher education.
  2. Investment in the education of children ensures their economic freedom.
  3. Economic freedom has a positive impact on building up human capital.

Which of the above assumptions is/are valid?

EXPLANATION

Correct Option (1)

Assumption 1 is valid. The passage explicitly states that "when people, thanks to lower tax rates, are allowed to retain most of the higher income that they gain from each incremental level of education, it makes eminent sense to invest in education." This directly establishes a correlation where lower tax rates provide an incentive for increased investment in education, including higher education.

Incorrect Options:

Assumption 2 is invalid. The passage mentions that "The same incentives apply to parents who decide on whether to invest in their children’s education." This indicates that parental decisions regarding children's education are influenced by the same tax-linked economic incentives. However, the passage does not assert that investment in education inherently guarantees or ensures economic freedom for children. This is an unsupported extrapolation.

Assumption 3 is invalid. The passage indicates that "the return on education increases as the level of economic freedom rises" and that people will invest in education when granted economic freedom to enjoy its benefits. While economic freedom is linked to increased returns on education and greater investment in it, the passage does not make the broader generalization that economic freedom has a direct positive impact on the overall building up of human capital. The text focuses on the incentive structure for individual investment rather than a comprehensive statement on human capital development.