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Is It Possible to Adjust ‘With a Human Face’? Differences in Fiscal Consolidation Strategies between Hungary and Iceland

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  • Bruno Martorano

    (Institute of Development Studies (IDS) – University of Sussex, Library Road, Brighton, East Sussex BN1 9RE, United Kingdom)

Abstract

Although Hungary and Iceland suffered a similar fall in GDP, their respective governments decided to follow different strategies of adjustment. Each country cut spending according to different priorities. Moreover, the Hungarian government implemented a flat tax reform, while the Icelandic government replaced the previous flat tax system with a progressive structure. As a result, Iceland met the objectives of the IMF program, while worsening economic conditions forced Hungary to ask for additional external help. In terms of income distribution, social transfers contributed to reducing inequality in Iceland but not in Hungary, while the different tax strategies operated in contrary ways.

Suggested Citation

  • Bruno Martorano, 2015. "Is It Possible to Adjust ‘With a Human Face’? Differences in Fiscal Consolidation Strategies between Hungary and Iceland," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 57(4), pages 623-654, December.
    • Handle: RePEc:pal:compes:v:57:y:2015:i:4:p:623-654
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    References listed on IDEAS

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    1. Robert H. Wade & Silla Sigurgeirsdottir, 2012. "Iceland's rise, fall, stabilisation and beyond," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 36(1), pages 127-144.
    2. Frances Stewart, "undated". "Horizontal Inequalities: A Neglected Dimension of Development," QEH Working Papers qehwps81, Queen Elizabeth House, University of Oxford.
    3. Tóth G., Csaba & Virovácz, Péter, 2013. "Winners and Losers – An assessment of the Hungarian flat tax reform with microsimulation," Public Finance Quarterly, Corvinus University of Budapest, vol. 58(4), pages 369-385.
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    2. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).

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