What are transfer payments?

Transfer payments refer to payments made by the government to individuals without any exchange of goods or services. These payments are intended to provide financial assistance to individuals or groups in need, such as unemployment benefits, Social Security payments, and welfare. The fundamental characteristic of transfer payments is that they do not correspond to direct compensation for services or goods provided; rather, they aim to support individuals based on social welfare policies.

In contrast, payments for goods and services, government contracts, and fees for government services all involve a reciprocal exchange where something of value is received in return. This differentiation is crucial in understanding how transfer payments fit within the broader context of government financial transactions and economic support systems.