This study evaluates the overall social policy system of Hungary and proposes reforms aimed at strengthening its role as a defense against poverty, raising the quality and equity of social programs, ensuring financial sustainability of the system, and restoring incentives (in particular relating to demand and supply for labor) suitable to a market economy. In addressing these concerns, the study examines the social policy framework in the context of total household income and the financial relationships among households, enterprises, and government, the distribution system, and considers the implications of current and alternative social policies for distribution of income among households. This report analyzes in depth social income in cash, while exploring the linkages with related issues in other social programs. An overview summarizes the economic context of social policy, with reference to patterns found in other market economies. It looks at how social policy expenditures and the major economic aggregates may develop in the future, as indicated by a simple projection analysis. The discussion summarizes the conclusions and recommendations regarding the needs for reform of the individual social programs. The summary discusses some of the major implementation issues addressed in the report, in particular: (1) the new relationships between local and central government in the administration and financing of social policy; (2) the tasks of administering a new selective social policy; and (3) the linkages between tax policy and social benefit policy. Data relating to education include education expenditure as percentage of gross domestic product (GDP), childcare benefits and the distribution of income, and scholarships for students. Contains 30 references. (DK)