Hungary: An Unfinished Decentralization?

Izabella Barati-Stec
Additional contact information
Izabella Barati-Stec: Corvinus University, Budapest

No 11, IMFG Papers from University of Toronto, Institute on Municipal Finance and Governance

Abstract: After 1990, Hungary took steps toward decentralizing public administration and decision-making power. Administrative decentralization, however, was not matched by the same level of fiscal decentralization, creating tension and disparities among Hungarian municipalities. The revenue-raising ability of local governments in Hungary—especially after the economic downturn in 2008—is very low. The debt service of municipalities is also considerably higher than before 2008, a situation that can be explained in part by the change in the value of Hungarian forint relative to the Euro and the Swiss franc, the currencies in which half of Hungarian local debt is denominated. This situation is sharpened by unhealthy municipal financing practices, such as financing operating expenses from investment revenues or from loans. The indebtedness of the municipal sector increased 12.6 times from 2001 to 2007, and in 2007 about 83 percent of municipal borrowing was not backed by immobile assets or any revenue stream. This paper examines the system of municipal finance in Hungary with special attention to the current changes in the regulation and finance of Hungarian municipalities and the change in central control over municipal finances in general after 2008 (in part precipitated by the failure of borrowing rules created during the transitional period to prevent the current crisis in municipal finance), and suggests possible reforms to solve the financing problems of Hungarian municipalities.

Keywords: Hungary; municipal finance; municipal borrowing (search for similar items in EconPapers)
JEL-codes: H21 H71 H77 H81 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2012-12
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Published in hard copy and online

Downloads: (external link)
https://tspace.library.utoronto.ca/bitstream/1807/ ... _stec_2012-12-02.pdf First version, 2012 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mfg:wpaper:11

Access Statistics for this paper

More papers in IMFG Papers from University of Toronto, Institute on Municipal Finance and Governance Contact information at EDIRC.
Bibliographic data for series maintained by Enid Slack ().