Second Act – second thoughts: the Hungarian debt rule

Gergely Baksay () and Gabor Kiss
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Gergely Baksay: Magyar Nemzeti Bank (the central bank of Hungary)

MNB Bulletin (discontinued), 2013, vol. 8, issue 3, 7-13

Abstract: If compliance with a fiscal rule in certain periods requires procyclical fiscal policy, it means that fiscal policy does not mitigate the cyclical fluctuations of the economy, but rather may amplify them, i.e. it is unable to perform its stabilisation function. On the basis of the analysis of the Hungarian debt rule, we found that the debt formula may result in procyclical fiscal policy at some points of the economic cycle. In this respect, an essential element of the rule is that it does not prohibit the general government from using financial assets for forming the debt differently from the deficit. This flexibility allows the avoidance of procyclical fiscal policy, but at the same time it may reduce the enforceability of disciplined fiscal policy.

Keywords: fiscal rules; debt dynamics; counter cyclical; procyclical. (search for similar items in EconPapers)
JEL-codes: E32 E62 H63 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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