BUDAPEST , 2010 MT - DP – 2010 / 27 Unreported Income , Education and Subjective Well - Being GYÖRGY MOLNÁR – ZSUZSA KAPITÁNY

There are two fairly widespread economic beliefs in Hungary that we investigate in this study and try to confirm or reject. People mostly see poverty and marginal labour market status as indicators of laziness and own tax evasion behaviour. People believe that the actual income of the poor and of people with disadvantageous labour market status is considerably more than that they declare. Analogous belief among highly educated people is that people with diploma have relatively less undeclared income than the others. In this study we make an attempt to identify relative unreported income of different social groups, using survey information on subjective well-being. In this attempt we apply the connection between reported satisfaction and actual income. We cannot exactly prove that the unreported income of the poor is relatively not higher than the unreported income of others, but our results make this statement very plausible. What we can show is that taking part in informal activity is not an option, but a forced choice for the majority of the poor. Unemployed, day-workers, public workers, and people living on welfare do not have considerable undeclared income, or if they had some this is accompanied by such self-exploitation that this offsets the effect of undeclared income on subjective well-being. We can also prove that people with diploma are in a much better and more advantageous situation than the others. Their economic, social and financial status has a considerable and positive effect on their subjective well-being. It is suggested and likely true that they have relatively more undeclared income than people without diploma. After controlling for income, activity, employment status, health state, social inclusion and relationships the education differences do not have an effect on subjective well-being, except higher education has a further, significant and considerable effect on subjective well-being.