Transfer payment

In macroeconomics and finance, a transfer payment (also called a government transfer or simply fiscal transfer) is a redistribution of income and wealth by means of the government making a payment, without goods or services being received in return (in contrast to financial transaction). These kind of payments are one-sided in nature, i.e. one party enjoys economic benefits from the other party. 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 subsidies for certain businesses.

Unlike the exchange transaction which mutually benefits all the parties involved in it, the transfer payment consists of a donor and a recipient, with the donor giving up something of value without receiving anything in return. Transfers can be made both between individuals and entities, such as private companies or governmental bodies. These transactions can be both voluntary or involuntary and are generally motivated either by the altruism of the donor or the malevolence of the recipient.^[2]

For the purpose of calculating gross domestic product (GDP) by expenditure method, government spending does not include transfer payments, which are the reallocation of money from one party to another rather than expenditure on newly produced goods and services.^[3]

^ Bishop, Matthew (2012). "Economics A–Z terms beginning with T –transfer". The Economist. Retrieved 11 July 2012. Payments that are made without any good or service being received in return. Much Public Spending goes on transfers, such as pensions and WELFARE benefits. Private-sector transfers include charitable donations and prizes to lottery winners.
^ Lampman, Robert J. (2016), "Transfer Payments", The New Palgrave Dictionary of Economics, Palgrave Macmillan UK, pp. 1–3, doi:10.1057/978-1-349-95121-5_1755-1, ISBN 9781349951215
^ Hall, Robert E.; Lieberman, Marc (2012). "Chapter 6: Production, Income, and Employment". Macroeconomics: Principles and Applications. Cengage Learning. p. 145. ISBN 978-1-111-82235-4.

[1] Bishop, Matthew (2012). "Economics A–Z terms beginning with T –transfer". The Economist. Retrieved 11 July 2012. Payments that are made without any good or service being received in return. Much Public Spending goes on transfers, such as pensions and WELFARE benefits. Private-sector transfers include charitable donations and prizes to lottery winners.

[2] Lampman, Robert J. (2016), "Transfer Payments", The New Palgrave Dictionary of Economics, Palgrave Macmillan UK, pp. 1–3, doi:10.1057/978-1-349-95121-5_1755-1, ISBN 9781349951215

[HallLieberman2012-3] Hall, Robert E.; Lieberman, Marc (2012). "Chapter 6: Production, Income, and Employment". Macroeconomics: Principles and Applications. Cengage Learning. p. 145. ISBN 978-1-111-82235-4.

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