Local government finances in Hungary: From the culprit of fiscal slippages to a source of stability?

Abstract

While in the decade prior to 2010 Hungarian local governments had been a notorious contributor to budgetary slippages and growing public indebtedness, the sector’s balance has subsequently turned to positive in the context of a wide-ranging centralisation effort and the corresponding revamp in subnational financing arrangements. The fiscal indicators therefore, prima facie, point to a transformation of a regular sinner into a source of stability. Based on a detailed account of the recent reform steps and the preliminary assessment of their first impacts, this study argues that it is too early to conclude that the observed positive developments are the structural results of the measures taken over the last five years. The enacted institutional streamlining, the new debt authorisation rule and the increased tapping of the local tax potential should all have a lasting positive impact on public finances. Nonetheless, the intended efficiency gains due to economies of scale in service provision are not yet apparent, insofar as no reduction has been achieved in the headcount of the concerned branches. Moreover, the observed non-differentiation in the debt assumption may raise the spectre of moral hazard for the municipalities in the longer run.

Fiscal Decentralisation of Services: The Case of the Local Public Sector in European Countries

“…the World Bank. Fiscal decentralisation can be performed by transferring competences regarding tax incomes and public expenditures; transferring competences in the area of public expenditures, or an increased participation of lower government levels in decision-making about some public goods (Jankovics, 2016;Onofrei et al 2020;Slavinskaite et al, 2020). In advanced market economies, a whole range of approaches is applied in measuring fiscal decentralisation (Price & Garello, 2003;Vo, 2008;Vokoun, 2017;Dias et al, 2020;Jankowiak, 2020).…”

Hardening the budget constraint: Institutional reform in the financial management of Hungarian local governments

“…Kornai 1980Kornai , 2014 and crucial for the continuous and sustainable operation of the local governments. Jankovics (2016) and Horv ath et al (2014) argues that the general and full debt consolidation that took place in Hungary had not been preceded by serious financial problems at the sector level. Thus, in fact, this bailout can be considered a indirect transfer provided in a differentiated way, a indirect transfer from the local governments and their residents who had no debt or had run into debt below average.…”

“…transaction levy, bank tax). Although the proportion of non-performing loans owed by the local governments was only 2.1% in mid-2011 (Jankovics 2016), the repayment of a significant part of the municipal debt would have only begun after 2011 (Vasv ari 2013b). Therefore, the issue of municipal debt could easily become subject to bargaining in the turbulent relationship between the banking system and the central government.…”

The scope of control of the supreme audit office in the Slovak Republic and in the other Visegrad Four countries

“…The aim of any control should undoubtedly be the very interest of learning from existing shortcomings and preventing them from happening in the future. It is necessary to ensure that day-to-day control is a part of governance in public administration, leading to credibility and transparency at all levels (Jankovics 2016;Meričková et al 2015;Nemec 2015;Reddy et al 2015).…”