DEFINITION of 'Equalization Payments'

A payment to a state, province or individual from the federal government for the purpose of offsetting monetary imbalances between different parts of the country or between individuals. Equalization payments help create comparable levels of public services, such as education and healthcare, and to supplement disadvantaged individuals with disabilities or low income.

Also known as "transfer payments".

BREAKING DOWN 'Equalization Payments'

In many countries there is a vast diversity between states and provinces in terms of the availability of employment, natural resources, etc. Equalization payments help correct these imbalances by spreading wealth from richer parts of the country to poorer areas, or from richer individuals to poorer ones if a progressive personal tax system is in place.

Although there is no formalized equalization payment program in the United States, many of the poorer areas receive assistance through grants and various social programs. These programs include Medicaid and Social Security.

Equalization payments are commonly distributed in Canada, Australia and Switzerland.

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