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Second Act – second thoughts: the Hungarian debt rule

Author

Listed:
  • Gergely Baksay

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

  • Gábor P. Kiss

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

Abstract

If compliance with a fiscal rule in certain periods requires procyclical fiscal policy, it means that fiscal policy does not mitigate the cyclical fluctuations of the economy, but rather may amplify them, i.e. it is unable to perform its stabilisation function. On the basis of the analysis of the Hungarian debt rule, we found that the debt formula may result in procyclical fiscal policy at some points of the economic cycle. In this respect, an essential element of the rule is that it does not prohibit the general government from using financial assets for forming the debt differently from the deficit. This flexibility allows the avoidance of procyclical fiscal policy, but at the same time it may reduce the enforceability of disciplined fiscal policy.

Suggested Citation

  • Gergely Baksay & Gábor P. Kiss, 2013. "Second Act – second thoughts: the Hungarian debt rule," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 8(3), pages 7-13, October.
    • Handle: RePEc:mnb:bullet:v:8:y:2013:i:3:p:7-13
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    File URL: http://www.mnb.hu/letoltes/baksay-pkiss.pdf
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    References listed on IDEAS

    as
    1. Ludovit Odor & Gábor P. Kiss, 2011. "The exception proves the rule? Fiscal rules in the Visegrád countries," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 6(2), pages 25-38, June.
    2. Gábor P. Kiss, 2011. "Moving target indication: Fiscal indicators employed by the Magyar Nemzeti Bank," MNB Occasional Papers 2011/92, Magyar Nemzeti Bank (Central Bank of Hungary).
    3. Balatoni, András & Tóth G., Csaba, 2012. "Az új magyar adósságszabály értékelése [Assessment of the new regulations on debt]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1107-1137.
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    Citations

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    Cited by:

    1. Tóth G., Csaba, 2017. "A nemzeti költségvetési szabályok elterjedése és hatása Európában [The spread of national fiscal rules and their effect in Europe]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1119-1147.

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    More about this item

    Keywords

    fiscal rules; debt dynamics; counter cyclical; procyclical.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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