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Financing local government in Hungary


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  • Bird, Richard
  • Wallich, Christine


Hungary has undertaken a bold and far-ranging reform of its system of subnational finances. This paper outlines the changes introduced in the system of local finance as a result of the 1990 Local Self-Government Act, and the 1990 Act on Local Taxes and provides a preliminary assessment of their implications as well as the need for further reform. These Acts, together with the annual Act on the Budget, define the overall scope and authorities of Hungary's approximately 3100 new local self-governments. These Acts: (i) define the new assignment of expenditures between central and local government; (ii) define the new local revenue sources; and (iii) establish the economic foundation, property rights and entrepreneurial functions of the localities. The paper outlines the historical evolution of the system, provides international comparisons, and describes its present-day form. Drawing on this background, it suggests some revised policies that should not only both help avert the potentially undesirable outcomes of the current system but, more positively, help Hungary to achieve its goal of a smaller, more efficient government sector without unduly exacerbating social inequalities. In turn, issues and recommendations are discussed in the following areas: local finance; assignment of expenditures; assignment of taxes; design of the transfer system; role of the localities in property management; capital investment; and other requisites for sound local finance.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 869.

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Date of creation: 31 Mar 1992
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Handle: RePEc:wbk:wbrwps:869

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Related research

Keywords: Banks&Banking Reform; Municipal Financial Management; National Governance; Urban Economics; Public Sector Economics&Finance;


References listed on IDEAS
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  1. Shah, Anwar, 1991. "Perspectives on the design of intergovernmental fiscal relations," Policy Research Working Paper Series 726, The World Bank.
  2. Shah, A., 1991. "The new fiscal federalism in Brazil," World Bank - Discussion Papers 124, World Bank.
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Cited by:
  1. Micklewright, John & Nagy, Gyula, 1999. "Living Standards and Incentives in Transition: the Implications of Unemployment Insurance Exhaustion in Hungary," CEPR Discussion Papers 2061, C.E.P.R. Discussion Papers.
  2. Bird, Richard, 1994. "Decentralizing infrastructure : for good or ill?," Policy Research Working Paper Series 1258, The World Bank.
  3. Richard M. Bird & Enid Slack, 2004. "Fiscal Aspects of Metropolitan Governance," International Tax Program Papers 0401, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
  4. John Micklewright & Gyula Nagy, 1997. "The Implications of Exhausting Unemployment Insurance Entitlement in Hungary," Innocenti Occasional Papers, Economic Policy Series iopeps97/8, UNICEF Innocenti Research Centre.


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