Question

Explain how governments send tax money back to households and firms.

Answer 1

When the government collects taxes, these are usually used for services such as building roads and hospitals. However, a percentage of such taxes are redistributed among the population, and returned to households and firms in various ways.

One of the most common examples is that of transfer payments. This is a transfer made by the government which is intended to redistribute income and wealth among the population. Examples include welfare, financial aid, social security, and business subsidies. The government can also return tax money through interests and wages (given to government employees).