State transfers

Also known as: State transfer payments

A transfer service is a benefit that a third party receives without the third party having to provide an economic consideration. The donations can consist of cash payments or goods (so-called real transfers). In economic terms, the term “transfer payment” stands for state measures.

Definition / explanation

In principle, any donation of money, assets or goods that is not tied to a specific economic consideration is a transfer payment. The state does not necessarily have to play a role. Gifts or donations are also transfer payments, as are certain social benefits from the employer to his employees.

In the economy, transfer payments are understood to mean government grants to non-governmental agencies, as well as grants from these agencies to the state for which no corresponding consideration has been or has to be rendered.

Unemployment benefit is not a transfer benefit because the beneficiaries made specific contributions to it during the employment relationship. Unemployment benefit II (Hartz IV), on the other hand, is a transfer payment, as in this case the state does not receive any consideration from the beneficiaries.

Reasons for transfer payments

Transfer payments serve to achieve social balance. By redistributing income, the state sets priorities for social development.

It is not about a balance between rich and poor, but about the implementation of minimum social standards and the livelihood of the individual citizen. This applies to direct donations to the citizen as well as indirect donations via transfers, such as the international balance in Germany or the promotion of business settlements. The latter transfer payment is also known as a subsidy.

Two directions of transfer performance

Transfer payments are made in two directions. On the one hand, the state with its public authorities is the provider of transfers and the transfer recipients are private households or companies. From the point of view of the transfer recipient, this is positive, which is why we also speak of positive transfers.

If this transfer recipient has to provide transfer payments to the state himself, then this process is referred to as a negative transfer from his point of view.
The form of the transfer can be different. In addition to cash benefits, transfers of goods are also possible, and direct and indirect transfers are possible.

  • direct - the benefit is made directly and specifically to the transfer recipient (e.g. child benefit)
  • indirect - there is a possibility, but it depends on the specific conditions of the transfer recipient (e.g. possibility of deducting certain expenses from the tax)

State transfer payments in Germany

The most important state transfer payments in Germany include:

  • Unemployment benefit II
  • Child benefit
  • Housing benefit
  • Parental allowance
  • social care
  • Bafög

In a broader sense, this also includes transfer payments from the municipalities, such as subsidies in local transport, for museums, swimming pools and the like.

a notice - State insurances, such as unemployment insurance or pension insurance, are not part of the transfer benefits. Here, the beneficiaries provide consideration in the form of corresponding contribution payments.

Non-governmental and international transfers

There are transfer payments that are not made directly by the state. In addition to the borderline case of municipalities, which ultimately provide services through state refinancing and therefore indirectly provide state transfers, transfers in the area of companies (continued payment of wages or social operating facilities) as well as services by non-profit organizations should be mentioned.

International transfer payments are made, for example, from the European Union. Attempts are made to support economically weak countries and regions through subsidies. The IMF, the World Bank and the UN, for example, pursue the same goals with their transfer payments.

Summary

  • Transfer payments are contributions to third parties without consideration
  • Social goals are in the foreground of economic transfer payments
  • Income redistribution in Germany through state transfers serves to secure minimum social standards
  • International transfers from organizations such as the IMF, the World Bank, the UN or the EU are made with the same goal = improvement of the social situation of the transfer recipient
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