transfer payments is a very important topic in national income chapter of macroeconomics class 12 CBSE Board
I will discuss definition, types and few examples of transfer payments in this article in detail.
Define Transfer Payments
A transfer is a transaction in which the payers provide a good, service, or asset without receiving from the recipient any good, service, or asset in return.
It is a payment without any quid pro quo.
Transfer Payments Example
1) Gift to anybody even for employees.
2) payment of tax to the Government.
3) Donations, charity by the government to the people.
4) Scholarships to students.
5) Payment of pocket money to children
6) donations from foreign governments
7) Winnings from lotteries, prizes.
Note:- Transfer Payments are not included in calculating national income.
Types of Transfer Payments
Transfer payments are of two types current transfer and capital transfer. let’s understand both concept one by one.
Definition of Current Transfers
Current Transfers:- A transfer made out of the current income of the payer and added to the current income of the recipient is called a current transfer.
Types of Current Transfers
Current transfers are of two types. current transfers ‘within the country’ and ‘between two countries’.
1. within the country from one resident to another
4) unemployment allowance
5) old age pensions
7) winning of lottery prizes
2. Between two countries by the residents of one country to another country
1) help in the form of donations
2) transfer of money from household to household by relatives residing abroad.
Definition of Capital Transfer
Capital Transfers:- A transfer made out of wealth or capital of the payer and gets added to the wealth or capital of the resident is called a capital transfer.
Types of Capital Transfer
Capital transfer are ‘within the country’ and ‘Between two countries’.
Examples of Capital Transfer
1. within the country
1) Capital Grants
2) lump sum payments to households affected by natural calamities,
3) Payments of taxes on capital & wealth
2. Between two countries
1) International Grants
2) War Damages