Reforms for Stability and Sustainable Growth

An OECD Perspective on Hungary

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EU accession in 2004 has confirmed Hungary’s successful transformation from a centrally planned economy into a functioning market economy operating within the framework of a multi-party democracy. However, the country’s output per capita is still well below the EU average, and public expenditures exceed revenues by a large margin. This report looks at ongoing efforts to restore fiscal balance and promote sustainable growth to accelerate the convergence process. Drawing on the experience of OECD member countries it proposes structural reforms to achieve these objectives, covering the following topics:

• Fiscal policy: Deficit reduction and making taxes and expenditures more growth friendly.

• Health care reform: Improving efficiency and quality of care.

• Pension reform: Providing old-age income security in the face of population ageing.

• Employment and social policies: Making formal employment more attractive.

• Education reform: Improving human capital formation.

• SME promotion:  Increasing competitiveness and fostering successful entrepreneurship.

• Innovation: Fostering rapid productivity growth.

• Energy policy and the environment: Responding to the threat of climate change.

• Public administration reform: Improving the performance of the public sector.

• E-government: Using technical progress to improve public service delivery.

An overview chapter synthesises the findings, highlighting the interdependence of policy actions in the various areas.



Education Reform: Improving Human Capital Formation

This chapter focuses on key weaknesses in the Hungarian education system, which create obstacles to the formation of human capital necessary to realise the country’s economic potential. In response to the over-supply of qualified teachers, and to ensure the quality of applicants and the training they receive, recommendations are made for the reform of teacher education and training, in combination with measures to raise the status of the teaching profession. In the context of a highly decentralised education system, effective system monitoring and performance evaluation is important, and the chapter sets out best practices from other countries that Hungary may find useful to adapt to its own system. Among OECD countries, Hungary has one of the lowest shares of the population receiving tertiary level education. To address this issue, the chapter argues for further expansion of tertiary education with a new model of cost sharing between public and private sources. Finally, although the inequities that are present in the Hungarian system are commonly recognised, the chapter argues that progress to redress the situation has been insufficient and makes specific recommendations for additional measures to be taken.


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