American Institute of Certified Planners (AICP) Practice Exam

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What does the productivity criterion ensure in tax policy?

Taxes are easy to compute and administer
Taxes do not hinder economic growth
Taxes are equally applicable to all income levels
Taxes generate observable outcomes in public services

The correct answer is: Taxes do not hinder economic growth

The productivity criterion in tax policy emphasizes that taxes should not impede economic growth. This principle is rooted in the notion that a well-designed tax system generates the necessary revenue without discouraging individuals and businesses from engaging in productive economic activities. When taxes are structured in a way that promotes investment, innovation, and consumption, they contribute to a healthier economy and can lead to increased overall tax revenues over time. This aligns with broader economic goals, such as promoting job creation and enhancing overall economic efficiency. By ensuring that taxes do not act as a disincentive for economic participation, the productivity criterion supports the notion that tax policies should facilitate an environment where economic growth can flourish, ultimately benefiting society as a whole.