Cash demand of the Hungarian economy – is the shadow economy still running smoothly?

Rita Odorán () and Balázs Sisak ()
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Rita Odorán: Magyar Nemzeti Bank (central bank of Hungary)
Balázs Sisak: Magyar Nemzeti Bank (central bank of Hungary)

MNB Bulletin (discontinued), 2008, vol. 3, issue 3, 19-25

Abstract: In international comparison the cash demand of the Hungarian economy is high and has increased over the last two years in a manner not related to the fundamentals of the economy. We have identified two factors which may have contributed to this process. The introduction of the tax on interest in 2006 points towards increasing cash demand given the one-off change of the opportunity cost of cash, and the increased tax burdens introduced in order to reduce the budget deficit as well as other austerity measures of the tax authority also increase cash demand through the presumed expansion of the shadow economy’s cash requirement. In addition, the high cash demand characterising the Hungarian economy may also be explained by the fact that in international comparison Hungary lags behind in the use of cashless payment instruments. High cash usage is unfavourable for the whole economy from several aspects. Our article emphasizes that while in developed countries one may find several examples of measures aimed at restricting the cash usage, in Hungary we have seen only failed attempts so far.

Keywords: high cash demand; cash usage; Hungary; shadow economy. (search for similar items in EconPapers)
JEL-codes: E26 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (1)

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