Question

Why should the following be not included in national income? Give a reason.

Payment of old-age pension by the government to its employees.

Answer 1

Payment of old-age pension by the government to its employees should not be included in national income because it is a transfer payment. The government gives pensions as a form of financial support for past services rendered, not as income from current productive activity. Since there is no current factor service provided, it does not contribute to the current flow of goods and services and is therefore excluded from national income.