Fiscal Adjustment In Hungary (1991-2003)

Fiscal adjustment was a particular important experience for the countries members of the European Union the 1990s as they prepared for the Maastricht criteria to enter the EMU. For the transition countries the effort seems to be double. This paper addresses the fiscal adjustment in Hungary trying to find if there was any episode of successful fiscal adjustment in the past 13 years. There are also identified the factors that hamper or, on the contrary, favor accomplishing a successful fiscal adjustment in Hungary. The paper brings something new in that it traces the fiscal consolidation performance only for one country, thus allowing detecting the policies that were unsuccessful in bringing a successful and lasting fiscal adjustment in Hungary. In conclusion, the basic ideas of the 2002 Pre-accession Program, respectively, the introduction of three-year rolling expenditure ceilings to serve as a basis for medium-term budget planning and the movement towards performance-based budgeting, can provide an answer to the problem of the political fiscal cycle, but only to the extent to which constituencies in Hungary decide what the appropriate level of public spending is and how to achieve it. (*Paper prepared by the author on the occasion of a visiting fellowship at the Institute for World Economics, Hungarian Academy of Sciences (24 May- 11 June 2004). The author would like to thank Professor Jacek Rostowski, Professor Laszlo Halpern, Professor Dezseri Kalman and Professor Peter Benczur for their comments and guidance regarding the fiscal policy in Hungary. Also, the author appreciates the opinions expressed by Mr. Donat Magyari (Cabinet of the Prime Minister). The author is also thankful to the Institute of World Economics for the opportunity to do this research and specifically to Mrs Eva Nagy, Mr Tamas Szemler and Mr Meisel Sandor for professional advises and logistic support).