Transfer payment

In economics, a transfer payment (or government transfer or simply transfer) is a redistribution of income and wealth (payment) made without goods or services being received in return. These payments are considered to be non-exhaustive because they do not directly absorb resources or create output.[1] Examples of transfer payments include welfare, financial aid, social security, and government making subsidies for certain businesses (firms).

For the purposes of calculating gross domestic product (GDP), government spending does not include transfer payments – the reallocation of money from one party to another – which includes Social Security, Medicare, unemployment insurance, welfare programs and subsidies. Because these are not payments for goods or services, they do not represent a form of final demand, or GDP.[2]

Criticism of transfer payments

A criticism of transfer payments is that they do not produce outcomes that are economically advantageous. Governments pool taxes and other sources of revenue together and spend the money to further a certain agenda. Some of the spending pays for goods and services, such as buildings, equipment, and government worker salaries. These expenditures are exchanges in which money is traded for something with a recognized value. The payments may be viewed as boosting industrial activity and employment. However, government transfer payments do not boost production or economic activity. For example, foreign aid does not necessarily prompt foreign trade.[3] Additionally, some argue that welfare programs, such as unemployment benefits and social security, reduce incentives to take paid work.

Other Languages
беларуская: Трансферт
беларуская (тарашкевіца)‎: Трансфэрт
čeština: Transfer
latviešu: Transferts
svenska: Transferering