Tax awareness and reform of the welfare state: Hungarian survey results

This paper reports the results of a survey on the tax awareness of the Hungarian population. Knowledge of tax types and levels is investigated, followed by questions on preferences for state expenditures. The design of the survey is aimed at a contingent evaluation of public sector involvement in health, pensions and higher education. The results show that fiscal illusions have their roots in poor knowledge of the tax cost of public expenditures. When people are provided with additional information on these factors, preferences for state involvement seem to diminish. Possible reform scenarios can be modelled with alternative formulations of institutional arrangements. Respondents tend to have most support for mixed strategies, while ‘pure state’ and ‘pure market’ solutions receive the lowest levels of support. However, since the outcome of any public sector reforms depends heavily on evaluation of the current regimes, an extensive part of the paper is devoted to the investigation of the ‘status quo effect’. The paper, though descriptive in general, provides normative evaluations and suggestions for further reforms.