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Reforms for Stability and Sustainable Growth

An OECD Perspective on Hungary

image of Reforms for Stability and Sustainable Growth

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.

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Innovation: Fostering Rapid Productivity Growth

Hungary has made steady progress in closing the income gap vis-à-vis high-income OECD economies. The level of innovation activity and performance, however, has remained comparatively low by most available indicators. As the income gap narrows, Hungary will have to raise its innovation performance in order to sustain the convergence process. Creating framework conditions conducive to innovative entrepreneurship and building efficient institutions of science, technology and innovation policy are key in boosting innovation. While many elements of a modern innovation system have been put in place since 1990, a more stable governance structure and medium- to long-term perspective in the realm of public research and development (R&D) policy would be helpful, not least to make efficient use of increased public funding for R&D and innovation co-financed by the European Union. More systematic monitoring and evaluation of public support programmes for innovation would provide the basis for a more evidence-based policy. In addition, there is a need to adopt more specific measures addressing major challenges facing Hungary’s innovation system: enhancing human resources for science and technology; fostering innovation in the business sector as well as excellence and relevance of public research; and developing international linkages in science, technology and innovation. These issues will be addressed in this chapter, and – in more detail – in OECD Reviews of Innovation Policy: Hungary (OECD, 2008a forthcoming).

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