Question

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

Answer 1

Governments send tax money back to households in the form of transfer payments, interest, and wages. Transfer payments are returned through services like Social Security and Medicare. Wages are paid through the use of tax money to government employees. Governments send money back to firms in the form of subsidies and payments for both financial aid and in return for goods and services.

Step-by-step explanation:

Answer 2

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).