Local contracting firms are hired to produce local government buildings, such as a new courthouse, or to build local roads and bridges. Businesses receive revenues from government for the goods and services produced as a result of government contracts. When a local contracting firm builds a new court house in a city, the firm receives payment from the government. Businesses pay income taxes on their profits. Businesses pay to taxes federal, state, and local governments.
Governments use some of the tax revenue collected to produce goods and services.
Governments use some tax revenue to pay people who work for the government and to transfer income to those living in poverty. In exchange for the work they do as government employees, workers expect to receive payment in the form of wages or salaries. These public goods are used by households. Saving is income that isn't spent on current consumption or taxes. Households earn interest on their savings.