Small-scale self-employed entrepreneurs in Hungary can opt for a simplified lump-sum taxation regime called KATA (kisadózók tételes adója) which covers all income taxes and social security obligations payable to the central government for a monthly tax of HUF 50,000 (approx. 170 USD). From the perspective of taxpayers, the main benefits of this regime (beside lower compliance costs) are the significantly lower social security contributions compared to the regular income tax and social security regimes. However, these also result in lower social security benefits, including lower paid medical leave, unemployment insurance, and pensions.
Additionally, KATA taxpayers can also opt for a higher contribution of HUF 75,000 per month (approx. 260 USD) which raises expected pensions at retirement by 10-40%, depending on the age of the taxpayer. Currently this higher bracket is chosen by around 5% of the full time KATA taxpeyers.
In this experiment we sent plain language letters to KATA taxpayers in a randomized controlled trial about the availability of this higher bracket, explaining the details with instructions how to opt for this bracket.