Development and Finance from issue 2008/4

Péter Benő Banai

Does Development Equal Indebtedness? - The Relation Between Additionality and the General Government Deficit

- Abstract -

JEL O-11

The two crucial economic policy challenges announced by the government for 2008 and the coming years are implementing the convergence programme, and as part of this, reducing the general government deficit as the basis for sustainable economic growth, while the second is the efficient use of EU funds, which since 2007 have significantly exceeded the amounts previously accessible. The convergence programmes and the budget acts have been elaborated in this spirit over the past few years. Meeting the two challenges is closely interlinked, they are conditional upon one another: the use of Community funds results in higher tax revenues, in addition to their positive impacts on economic growth, i.e. they contribute to the consolidation of public finances. On the other hand, diverging negatively from the deficit target set in the convergence programme might result in the loss of certain Community funds, namely amounts from the Cohesion Fund aimed at financing transport and environmental protection objectives. A less known rule is that of additionality, which links general government deficit and available EU funding for development purposes in a way that is not very clear-cut but can still influence general government spending and indirectly, the deficit.

Péter Benő Banai, PhD student (BME, Doctoral School of Technical Management, Business and Organisational Science)

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