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Local Government Finances in Hungary: From the Culprit of Fiscal Slippages to a Source of Stability?

Author

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  • László Jankovics

    (European Commission Directorate General for Economic and Financial Affairs)

Abstract

While in the decade prior to 2010 Hungarian local governments had been a notorious contributor to budgetary slippages and growing public indebtedness, the sector’s balance has subsequently turned to positive in the context of a wide-ranging centralisation effort and the corresponding revamp in subnational financing arrangements. The fiscal indicators therefore, prima facie, point to a transformation of a regular sinner into a source of stability. Based on a detailed account of the recent reform steps and the preliminary assessment of their first impacts, this study argues that it is too early to conclude that the observed positive developments are the structural results of the measures taken over the last five years. The enacted institutional streamlining, the new debt authorisation rule and the increased tapping of the local tax potential should all have a lasting positive impact on public finances. Nonetheless, the intended efficiency gains due to economies of scale in service provision are not yet apparent, insofar as no reduction has been achieved in the headcount of the concerned branches. Moreover, the observed non-differentiation in the debt assumption may raise the spectre of moral hazard for the municipalities in the longer run.

Suggested Citation

  • László Jankovics, 2016. "Local Government Finances in Hungary: From the Culprit of Fiscal Slippages to a Source of Stability?," Society and Economy, Akadémiai Kiadó, Hungary, vol. 38(4), pages 455-478, December.
    • Handle: RePEc:aka:soceco:v:38:y:2016:i:4:p:455-478
    Note: I am indebted to the participants of the May 2013 economic policy conference at the University of Debrecen (Department of Economics) for their thoughtful comments on the preliminary draft of this paper. I am particularly grateful to my former colleague Iván Csaba for his encouragement and insightful suggestions. I also thank the two anonymous reviewers for their constructive comments, which helped me to improve the manuscript. Susanne Hoffmann provided excellent research assistance. The views expressed in the article are solely those of the author, and do not necessarily reflect the official position of the European Commission. The paper was prepared when the author was DG ECFIN’s Resident Representative based at the Commission Representation in Hungary.
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    Citations

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    Cited by:

    1. Lenka Hudáková Stašová, 2019. "The Scope of Control of the Supreme Audit Office in the Slovak Republic and in the other Visegrad Four Countries," Society and Economy, Akadémiai Kiadó, Hungary, vol. 41(2), pages 245-262, June.
    2. Vasvári, Tamás, 2019. "Decentralizáció és költségvetési korlát. Miért fontos, hogy a haszonélvezők viseljék a költségeket? [Decentralization and budget constraints. Why should costs be borne by those benefiting from them," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 932-959.

    More about this item

    Keywords

    fiscal federalism; fiscal consolidation; public administration reform; local governments in Hungary;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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