1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Ensuring Debt Sustainability Amid Strong Economic Uncertainty in Hungary

Despite a deep recession in 2009 and weak growth in subsequent years, Hungary’s fiscal position compares favourably with many other OECD countries. Nonetheless, the underlying fiscal balance started deteriorating in 2010 and 2011. Recognising this, Hungary’s government launched an ambitious set of fiscal consolidation measures in spring 2011, the Széll Kálmán plan, which is rightly focused on curbing public expenditure. This plan, together with subsequent significant revenue-increasing measures, should help restore fiscal adjustment in 2012 and 2013. However, ensuring the sustainability of Hungarian public debt remains challenging in the context of the persistence of the sovereign debt crisis in many European economies since shifts in market sentiment could lead to unsustainable debt servicing costs. In this context, increasing the credibility of fiscal consolidation requires using several policy levers. First, the cost/risk assessment of the debt management strategy should be reassessed by taking into account lessons from the current crisis: the share of government borrowing in foreign currency will likely need to be drastically reduced. Second, additional consolidation efforts should focus more strongly on the spending side and avoid raising distortive taxes. Third, the fiscal framework should be improved by making fiscal rules less pro-cyclical and by raising the profile and political acceptance of the fiscal council through better analytical support and an enlarged mandate, while removing its power to veto the budget. This Working Paper relates to the 2012 OECD Economic Survey of Hungary (www.oecd.org/eco/surveys/hungary).

English

Keywords: public debt management, fiscal institutions and rules, taxation, fiscal consolidation, Hungary, public spending
JEL: H63: Public Economics / National Budget, Deficit, and Debt / National Debt; Debt Management; Sovereign Debt; H21: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Efficiency; Optimal Taxation; H55: Public Economics / National Government Expenditures and Related Policies / Social Security and Public Pensions; E62: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Fiscal Policy; H50: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Related Policies: General; E02: Macroeconomics and Monetary Economics / General / Institutions and the Macroeconomy
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