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Credibility and Flexibility – Changes in the Framework of Hungarian Public Finances

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  • Domokos, László

Abstract

This paper presents the three most important institutional steps that Hungary took in 2010 and 2011 to promote the responsible management of public funds. It provides a detailed analysis of the strict provisions of the new Constitution regarding public finances, the strengthened mandates of the Fiscal Council and the renewed audit instruments of the State Audit Office of Hungary. The transformation of the institutional system and the regulatory environment was necessary because the significant increase in debt indicated that the earlier, more permissive regulation failed to attain its target. Experience confirmed that without strict rules and reinforced institutions it is not possible to regain the credibility of fiscal policy and to ensure the economical and responsible financial management of the public sector. The paper explains that Hungary’s new fiscal rules represent an unprece-dented fiscal commitment even at international level, and that the constitutional powers of the Fiscal Council and the resulting rigour are unique in the world.

Suggested Citation

  • Domokos, László, 2011. "Credibility and Flexibility – Changes in the Framework of Hungarian Public Finances," Public Finance Quarterly, Corvinus University of Budapest, vol. 56(3), pages 291-302.
    • Handle: RePEc:pfq:journl:v:56:y:2011:i:3:p:291-302
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    File URL: https://unipub.lib.uni-corvinus.hu/9014/
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "A Decade of Debt," Central Banking, Analysis, and Economic Policies Book Series, in: Miguel Fuentes D. & Claudio E. Raddatz & Carmen M. Reinhart (ed.),Capital Mobility and Monetary Policy, edition 1, volume 18, chapter 4, pages 97-135, Central Bank of Chile.
    2. Wyplosz, Charles, 2005. "Fiscal Policy: Institutions versus Rules," National Institute Economic Review, National Institute of Economic and Social Research, vol. 191, pages 64-78, January.
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    4. Simon Wren-Lewis, 2011. "Comparing the delegation of monetary and fiscal policy," Economics Series Working Papers 540, University of Oxford, Department of Economics.
    5. Kopits, György & Romhányi, Balázs, 2010. "A Költségvetési Tanács indulásának tanulságai [Hungarys Fiscal Council: Early lessons]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 573-590.
    6. Lars Calmfors, 2011. "The Role of Independent Fiscal Policy Institutions," CESifo Working Paper Series 3367, CESifo.
    7. Domokos, László, 2010. "Lack of transparency hindering foresight in the planning and execution of the budget," Public Finance Quarterly, Corvinus University of Budapest, vol. 55(4), pages 739-745.
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    Cited by:

    1. Kerényi, Ádám, 2012. "Need for rethinking of the Hungarian fiscal and monetary policy," MPRA Paper 40352, University Library of Munich, Germany.

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    More about this item

    Keywords

    budget; fiscal policy; public finances; fiscal council; budgetary institutions;
    All these keywords.

    JEL classification:

    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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