Simulation of fiscal institutions: passport or pass partout

Gabor Kiss

Public Finance Quarterly, 2007, vol. 52, issue 2, 377-391

Abstract: A The delay in accession to the euro zone makes the Hungarian economy vulnerable, thus the present state of public finance may be the source of serious problems. The prerequisite of accession is for the deficit measured with the European methodology to stay below 3 per cent of GDP, whereas the deficit in 2002 and in 2006 exceeded 9 per cent and fluctuated between 6–8 per cent in the interim period. Fluctuation is meant here literally since the Hungarian figures were modified systematically and rather substantially after the first publication of data. Beyond the high level of deficit, another at least as serious a problem lies in the significant role played by creative accounting and the (quasi-fiscal) circumventing of official accounting. This is partly in contradiction with the European statistical methodology and leads to a supplementary revision of data. But partly even this methodology makes “deferred payment” possible, for example, in the form of expost debt assumption or PPP repayment instalments. The alternative calculations of the central bank are also corrected with that, thus revealing that the actual deficit-to-GDP in 2002–2004 was permanently in the 8–9 per cent range, and thereafter it went beyond 9 per cent in 2005 and 10 per cent in 2006.

Date: 2007
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