Changes in the Hungarian taxpayers' behaviour with a view to changes in the personal income tax and the national insurance contribution, 2005–2006

Abstract

The Hungarian literature has not provided a description of the Hungarian model based on a mathematical scheme and the investigation of the resulting relations. In general, the tax and national insurance levies are two separate systems, and the interference of them has hardly or not been analysed by the experts. Therefore, I first looked at these relations when examining the personal income tax revenues, the tax rate and the national insurance levies and the changes of this system. It was clearly revealed that it was the change in the national insurance levies that primarily influenced the taxpayers' behaviour and consequently the declared tax; nevertheless, this was suitable for analysis only with certain restrictions. The separation of the effects, the changes of the individual factors and their interference still need to be proved. The principles, acknowledgement and implementation of the Hungarian tax system do not differ from the systems used in developed countries; therefore descriptive models used in such countries may be used for the description of the Hungarian system, too. Based on this, I set up and analysed the English descriptive model suitable for the calculation of the tax burdens, taking the Hungarian peculiarities into account. Adapting the English descriptive model, taking the Hungarian circumstances into account, has enabled me to analyse the impact of the effective tax rates and the tax allowances with regard to the tax revenues. The Hungarian model differs from the English in that different allowances are used in Hungary and certain allowances depend on the employment status; for this reason I have established two groups: employees and private entrepreneurs. The classification of taxpayers by occupational groups and allowance categories has shown which group may generate more or less revenues when certain changes take place. According to the model, the tax revenues are influenced not only by the rate of the contributions and taxes, but their relative proportions. In addition, the introduction of more stringent measures regarding the national insurance contributions significantly decreases the number of taxpayers, including the widening of the tax base for the contributions. Therefore any tax-related measures and their impact should be analysed together with the changes in the national insurance contributions taking place the same year so that revenue estimates could become true the following year. At the same time, a group of taxpayers adapt to the changes extremely fast, while the only strategy available to the employees in the public sector is asking for a bigger pay rise. These differences are duly reflected in the models set up for the two occupational groups.