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The origin of the present inconsistencies in the Hungarian economy

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Mihalyi P.

Kozgazdasagi Szemle (Economic Review)

2008

vol. 55

issue 3

193-217

The title is a tribute to Ferenc Jánossy, who died ten years ago. Successful economic policy is the exception, not the rule in the globalized world economy. It is easier to reach a position close to crisis than to battle one's way out of it again. The 2007 stabilization in Hungary failed to change real-sphere behaviour. Stagflation threatens. The causal explanation of this is multi-factorial, but the most important lead back to the tax structure inherited from the period before 1989. 1. Employers and employees have common interests against the state. 2. A welfare net woven too finely provides a disincentive to legal employment. 3. Small and medium-sized firms under specific post-communist conditions are incapable of absorbing the less-qualified employees. 4. The strategy of Hungarian families for decades has been to accumulate capital in the form of housing, while everyone expects the state to supplement the income of the aged and finance health care. 5. Undercover payment of wages in the corporate sphere is partly a cause and partly an effect of the massive number of unaccounted transactions. 6. We have no clear picture of real personal incomes in relation to each other or the situation of households. This blunts the effects and undermines the credibility of welfare measures accomplished through taxation, and ultimately narrows the government's room for manoeuvre.

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1 Kozgazdasagi Szemle (Economic Review)

1 2008

1 Mihalyi P.

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The origin of the present inconsistencies in the Hungarian economy