FACTOR INCOME AND TRANSFER INCOME

Factor Income:

Definition: It refers to income received by factor of production (labour, Land, Capital and Enterprise) for rendering factor services in the production process.

  • Factor Incomes of normal residents of a country is included in the National Income.
  • For example-Rent, Wages, Interest and Profit.

Transfer Income:

Definition: Transfer Income refers to income received without rendering any productive service in return.

  • It is unilateral (One-sided) concept.
  • As there is no production of goods or services, it is not included in National Income.
  • For example- Old age pension, pocket money, unemployment allowance, scholarship etc.

Note: Taxes received by the government are the transfer incomes of the government as they are received without providing any productive service in return. Similarly, subsidies paid by the government are transfer payments of the government.