A Systemic Approach to the Local Government System

The Hungarian system of local governments is an important part of the public finance system. The share of the local government system within general government spending was around 20% in 2010 and is still 11–12% following the recent reallocation of responsibilities. From 2012 to date, fundamental changes have been made to the system of local governments operating since 1990. This paper does not seek either to evaluate the changes or to make comparisons of any kind between the new system of local governments and the former system. Although a vast majority of the changes have been implemented on the basis of recommendations over which there was consensus among experts, the time that has elapsed since the adoption of the new Local Government Act is not sufficient for a comprehensive evaluation. In this paper, I am making an attempt to outline a framework that could be suitable for an analysis of the changes. I will be highlighting four of the components constituting the local government system: the responsibilities of local governments, the funding system, the regulatory environment setting out the operating framework of the system, and the organisational system. My experience suggests these components to be the most relevant in discussing the system of local governments as a public finance system. These system components are highly interdependent, and their movements are aligned. Consequently, any proposal for change will only be meaningful with this interdependence in mind. I will be elaborating on the matter at hand primarily in a public finance approach, merely touching upon the legal context of the system.