Development and Finance from issue 2011/1

Ádám Kerényi

Double Fiscal Consolidation in Hungary between 2006-2010

- Abstract -

As a result of the economic policy pursued by Hungary between 2007-2010 the country has been among the most disciplined countries as regards its budget policy is concerned. Leading economic experts list three conditions to be satisfied on the basis of OECD country experiences for successful consolidation. (1) Instead of increasing taxes the emphasis should be put on the expenditure side. (2) The size of administrative spending and the number of state employees should be cut (3) The welfare system has to be redesigned.

Hungary was on the verge of financial bankruptcy in 2006 and in 2008. Fiscal consolidation had two waves, the first came from internal pressure and the second due to international conditions. The two financial adjustment programs together satisfied the three conditions of a theoretically successful fiscal consolidation.

The elections of 2010 fundamentally changed the composition of the Parliament. Despite this change the budget limit of 3% in the next years has to be met. An additional positive effect of a balanced budget would be the earlier euro introduction. Conditioned by the slow GDP growth the increase of budget revenues, fast development of the living standards hardly can be expected.

Ádám Kerényi, PhD student (University of Szeged, Doctoral School in Economics)
download full article