Question

How do transfer payments differ from factor payments?

Answer 1

Sr. No.	Transfer Payments	Factor Payments
1.	Payments made without any corresponding productive service being rendered.	Payments are made for the services rendered by factors of production in the creation of goods and services.
2.	One-sided (unilateral), no service provided in return.	Two-sided (reciprocal) involve a service in return.
3.	Pensions, unemployment benefits, welfare payments, scholarships, gifts, and donations.	Wages, salaries, rent, interest, profit.
4.	Excluded from national income.	Included in national income.
5.	Not linked to any production in the current period.	Directly linked to current production of goods and services.
6.	To provide financial support or redistribute income.	To compensate for productive contribution.