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Equilibrium, Growth and Reform

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  • János Kornai

Abstract

In 2001 the Hungarian economy departed from the path of balanced growth. During the past six years the state budget deficit has grown to an unsustainable level, and also the deficit in the current accounts has become too high. Real wages have increased considerably faster than labour productivity. These difficulties and other macroeconomic troubles led the Hungarian Government to the introduction of an adjustment program in July of this year. The first part of the article analyzes the current macroeconomic situation and the expected economic and social effects of the adjustment program. The commitment and determination of the government is shown by the fact that they are ready to accept the political “price” of the program, i.e. that the unavoidable measures will probably reduce the popularity of the election winning political powers. The second part of the article discusses the relationships concerning measures requiring immediate execution and reforms aimed at long-lasting effects and in depth institutional changes. These are indispensable to the sustainability of the effects of the adjustment. In connection with this, the paper reflects on the relationship between the budget deficit and the size of the state, on the proportions of state- and self-support, as well as on the speed and the gradual implementation of the reforms.

Suggested Citation

  • János Kornai, 2007. "Equilibrium, Growth and Reform," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 3-26.
  • Handle: RePEc:bas:econst:y:2007:i:2:p:3-26
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    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • P36 - Economic Systems - - Socialist Institutions and Their Transitions - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty

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