Government Expenditure Theories - Transfer Payments - Who transfers what to whom?
A transfer payment is a 'payment for which no good or service is exchanged'. In other words, money has simply been transferred from one person in society to another without anything being done for it. Normally when we transfer money we get something in exchange. It may be buying goods or services, or employing someone to do something. In the case of transfer payments, however, this doesn't happen. An example of this situation is unemployment benefit. The person unemployed has not done anything for the money - the government has simply transferred it to them from other taxpayers as they are in need.
The main government department that deals with transfer payments is the Department of Social Security. It makes welfare payments to those in need, but no good or service is exchanged. Most other government expenditure is not transfer payments, as the people receiving the payments are working in some way for them.
The main examples of transfer payments are:
- Benefits - unemployment and social security
- Pensions
- Lottery winnings