Capital Stock and Economic Development in Hungary

Income per capita of Hungary attained 70 percent of the Austrian level by the end of the eighteenth century and fluctuated around this value between the World Wars. As an „achievement” of the last 50 years this ratio — measured at purchasing power parity — has decreased to about 40 percent by the beginning of the nineties. Economic successes since transformation started raised the hope that the Hungarian economy’s lot might turn from the process of lagging behind to catching up. This hope is supported by microeconomic factors such as the intellectual skills of labor, entrepreneurial abilities, and the capacity to accommodate new knowledge and technologies. However, the utilization of microeconomic potentials greatly depends on macroeconomic policies. Microeconomic development efforts lead to increase of investments at the aggregate level, therefore, macroeconomic policy must face the problem of balancing needs and resources. This paper tries to quantify the determinants of this balance. The value ofthe physical capital stock is estimated and on the basis of international experiences investments paths for future income levels are set. Savings prospects of different sectors are confronted with investments needs. Calculations are followed by an economic policy analysis of the fiscal measures needed to catch up to 70 percent of the Austrian level again by 2030.