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

Sustaining the Momentum of Fiscal Reform in Hungary

Hungary has faced a considerable challenge to regain credibility following persistent and high fiscal deficits. Efforts during recent years have produced substantial results. The fiscal deficit has been brought down significantly and, despite the recession, fiscal consolidation has continued to help restore foreign investor confidence. Short-term fiscal adjustment needed to be accompanied by measures that can durably improve Hungary’s fiscal position, however, and it has; the adoption in 2009 of a pension reform and a Fiscal Responsibility Act, creating a Fiscal Council and fiscal rules hold that potential. These results should not lead to complacency. Some expenditure cuts, such as lower public salaries, may prove difficult to sustain. Fiscal consolidation in the past owed both to expenditure cuts and revenue increases. As a result, and despite an important tax reform starting in the second half of 2009 and extended from the beginning of 2010, marginal tax rates remain high, with adverse effects on the labour market and growth. Going forward, the government needs to contain public expenditure growth and improve public administration efficiency to reduce the public “footprint” on the economy and allow lower taxes. Key areas that warrant intensified efforts are public administration and health. The government should help secure a prominent role for the Fiscal Council and sufficient experience needs to accumulate before considering any substantial changes in the fiscal rules. Finally, improvements to make taxation less distortive should continue by further reducing tax wedges, and increasing the role of wealth taxes, notably for local governments. This Working Paper relates to the 2010 OECD Economic Survey of Hungary (www.oecd.org/eco/surveys/hungary).

English

Keywords: public services, efficiency, fiscal rules, taxation, fiscal policy, fiscal consolidation, fiscal sustainability, deficit, budgets, debt, public expenditure
JEL: H11: Public Economics / Structure and Scope of Government / Structure, Scope, and Performance of Government; H50: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Related Policies: General; H51: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Health; H59: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Related Policies: Other; H55: Public Economics / National Government Expenditures and Related Policies / Social Security and Public Pensions
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