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Financing local government in Hungary


  • 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.

Suggested Citation

  • Bird, Richard & Wallich, Christine, 1992. "Financing local government in Hungary," Policy Research Working Paper Series 869, The World Bank.
  • Handle: RePEc:wbk:wbrwps:869

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    References listed on IDEAS

    1. Shah, Anwar, 1991. "Perspectives on the design of intergovernmental fiscal relations," Policy Research Working Paper Series 726, The World Bank.
    2. Shah, Anwar, 1990. "The new fiscal federalism in Brazil," Policy Research Working Paper Series 557, The World Bank.
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    Cited by:

    1. John Micklewright & Gyula Nagy, 1997. "The Implications of Exhausting Unemployment Insurance Entitlement in Hungary," Papers iopeps97/8, Innocenti Occasional Papers, Economic Policy Series.
    2. Bird, Richard, 1994. "Decentralizing infrastructure : for good or ill?," Policy Research Working Paper Series 1258, The World Bank.
    3. 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.
    4. 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.


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