Transfer payments
Also called: Transfers, TR · Topic: National Income Accounting: GDP, GVA and Welfare · NCERT: Class 12, Ch 2 "National Income Accounting"; Class 12, Ch 5 "Government Budget and the Economy"; Class 12, Ch 6 "Open Economy Macroeconomics"
Meaning
Transfer payments are payments received without giving any goods or services in return. Examples are pensions, scholarships, prizes, gifts, remittances and grants. They move income from one person or group to another but create no new output, so they are excluded from GDP. They are added when working out personal income.
Example
A government scholarship paid to a student is a transfer payment. It adds to the student's personal income but not to GDP. Here is a worked case: national income is ₹1,900 crore, retained earnings are ₹200 crore and personal income is ₹1,800 crore, with no interest flows. Then 1,800 = 1,900 − 200 + transfers, so transfers = ₹100 crore.
Don't confuse with
- Factor payments: wages, rent, interest and profit are paid in return for productive services, so they count in national income. Transfers are not paid for any service.
Related concepts
- Gross National Product
- Net factor income from abroad
- Normal residents
- Domestic territory
- Net Domestic Product
- NDP at factor cost
- Net National Product
- GNP at factor cost
- National income
- Personal income