IDEAS home Printed from
   My bibliography  Save this article

Act one, act first – the law on fiscal responsibility


  • Gergely Baksay

    () (Magyar Nemzeti Bank (central bank of Hungary))

  • Gábor P. Kiss

    () (Magyar Nemzeti Bank (central bank of Hungary))


The Law on Fiscal Responsibility adopted late 2008 is a new element in Hungarian fiscal policy, although not without precedent. Under the law, the Parliament and the Government limit themselves to prevent high fiscal deficits and a further increase in public indebtedness, experienced in recent years. Budget planning turns into a three-year process, hardening over time. As a first step, the targeted primary (non-interest) budget balance is subject to the requirement that the stock of government debt cannot rise in real terms. However, ex post, the law allows for deviations in fiscal performance-including those reflecting the effect of so-called automatic stabilizers-attributable to factors beyond the control of the authorities. This means that the actual deficit is not necessarily equal to the deficit path consistent with the real debt limit, but it may fluctuate around this trend over the medium term. In addition, the law prescribes observance of the pay-go principle. Finally, it provides for the establishment of an independent Fiscal Council entrusted with monitoring compliance with the rules and with transparency standards. We evaluated the law according to the Kopits–Symansky criteria applied in the international literature. In most aspects, the law exhibits favourable properties, consistent with the criteria, although inevitably at the expense of simplicity. The assessment suggests that the law would benefit from extending coverage of the rules to local governments. Moreover, enforceability of the rules would be strengthened if the law were adopted by a qualified legislative majority.

Suggested Citation

  • Gergely Baksay & Gábor P. Kiss, 2009. "Act one, act first – the law on fiscal responsibility," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 4(1), pages 15-23, May.
  • Handle: RePEc:mnb:bullet:v:4:y:2009:i:1:p:15-23

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Lown, Cara & Morgan, Donald P., 2006. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1575-1597, September.
    2. Stacey L. Schreft & Raymond E. Owens, 1991. "Survey evidence of tighter credit conditions: what does it mean?," Economic Review, Federal Reserve Bank of Richmond, issue Mar, pages 29-34.
    3. Güner, A. Burak, 2008. "Bank lending opportunities and credit standards," Journal of Financial Stability, Elsevier, vol. 4(1), pages 62-87, April.
    4. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-439, May.
    5. Giovanni Dell’Ariccia & Deniz Igan & Luc Laeven, 2012. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 367-384, March.
    6. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    7. Jesper Berg & Annalisa Ferrando & Gabe de Bondt & Silvia Scopel, 2005. "The bank lending survey for the euro area," Occasional Paper Series 23, European Central Bank.
    8. de Bondt, Gabe & Ferrando, Annalisa & Berg, Jesper & Van Rixtel, Adrian & Scopel, Silvia, 2005. "The bank lending survey for the euro area," Occasional Paper Series 23, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    More about this item


    fiscal rules; budget planning; Fiscal Council.;

    JEL classification:

    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • K39 - Law and Economics - - Other Substantive Areas of Law - - - Other


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mnb:bullet:v:4:y:2009:i:1:p:15-23. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maja Bajcsy). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.