Subsidies as Transfer Income and their Inclusion in National Income
Subsidies as Transfer Income:
Subsidies are financial assistance provided by the government to certain sectors, industries, or individuals to support their activities or reduce their costs. Subsidies can take various forms such as direct cash payments, tax breaks, or discounted services.
Transfer Income:
Transfer income refers to income that is received without any corresponding productive activity, such as social security payments, unemployment benefits, or subsidies. Transfer income is typically provided by the government or other entities to support individuals or groups in need.
Inclusion in National Income:
Subsidies are considered as transfer payments and are not included in the calculation of national income. This is because subsidies do not represent payments for goods or services produced, but rather they are transfers of income from the government to specific sectors or individuals.
Including subsidies in national income would lead to double counting, as the subsidies would already be reflected in the prices of goods and services produced. Therefore, to avoid overestimating the national income, subsidies are excluded from the calculation.
In conclusion, subsidies are considered as transfer income and are not included in the national income calculation. They are a form of government support to specific sectors or individuals and do not represent productive economic activity.