Freeing the hamstrung economy

József Papp

Public Finance Quarterly, 2008, vol. 53, issue 4, 675-707

Abstract: The biggest problem of the Hungarian economy is that the heavily taxed white economy and the grey economy, which optimises tax payment by reducing it to the minimum, hamstring each other: “due to the funding needs of public expenditures that are excessive compared to the performance of the economy, high personal income tax and contributions should be paid. However, the SME sector is uncompetitive with prices that include all taxes and public dues payable on the wages of employees as required by law. Overtaxed households are also unable to pay for goods and services produced in the grey economy the price that includes all taxes and contributions! On top of that, those layers of the society that are unable to avoid tax payment must be heavily taxed because of the excessive size of the grey economy, the players of which hardly pay any taxes. And the grey economy is so swollen because of the unbearably high tax and contribution burdens!” (József Papp, 2006) Being so hamstrung makes the Hungarian economy uncompetitive and unable to grow.

Date: 2008
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