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2004 OECD Economic Surveys: Hungary 2004

image of OECD Economic Surveys: Hungary 2004

In its 2004 review of Hungary’s economy, OECD finds that Hungary has achieved rapid growth and is catching up with other European economies, but that these achievements in themselves are presenting new challenges.  The survey makes a series of recommendations for strengthening the macroeconomic framework, for boosting labour force participation, and for sustaining high productivity growth. 

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Structural Policies to Foster Growth

Growth has been rapid since the mid-1990s, averaging 4¼ per cent annually since 1997, but per capita income in Hungary is still less than 57 per cent of that in the European Union (at purchasing power parities) although about 12 percentage points higher than 10 years ago. While the growth performance demonstrates significant achievement, the level of GDP per capita illustrates the enormous challenge that still lies ahead. Indeed, designing a coherent structural policy strategy that can lead to continued successful catch up and promote macroeconomic stability and fiscal consolidation will require continuing comprehensive structural reforms. This chapter reviews recent progress in a number of key policy areas and points to outstanding problems and options for further growth-enhancing reforms. As outlined in Chapter 1, increasing the employment rate is one of the most important challenges. This requires reductions to the tax wedge, particularly at the bottom end of the labour market, but also changes to the transfer system. Reduction in the tax wedge could be helped if avenues for shifting the burden of taxation towards capital are exploited — within the constraint of keeping business taxes favourable for international competitiveness. In this regard, this chapter also examines the other policies used for attracting FDI as well as measures targeting SMEs. Transport policy is also investigated, being of particular relevance for the reduction of Hungary’s wide regional disparities in growth and living standards. A review of financial sector issues includes analysis of the subsidised mortgage loans, which are another element driving regional disparities. The chapter also looks at the implications for the banking sector of the subsidised credit and loan schemes for businesses. The key recommendations for further structural reform are summarised in Table 3.1...

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