Arbeitspapier

Fiscal responsibility framework: International experience and implications for Hungary

In an effort to correct worrisome trends in discretionary fiscal policy (deficit bias, procyclicality, and structural distortions), an increasing number of countries introduced a rules-based fiscal responsibility framework (FRF), characterized by fiscal policy rules, procedural rules, transparency standards, and a surveillance and enforcement mechanism. Preliminary evidence suggests that compliance with a well-designed FRF contributes to building policy credibility, to reducing risk premia, to boosting economic growth, and to lowering output volatility. Faced with large and persistent fiscal imbalances and a sharp buildup of public indebtedness, Hungary would benefit from exploring the adoption a FRF along the following lines. The FRF should encompass the entire public sector, fully accounting for contingent liabilities, and including prudent fiscal projections. Second, it is necessary to strengthen procedural rules, including implementation of the pay-go approach to budget legislation and preparation of a rolling three-year budget program, setting annual limits on the nominal level of primary expenditures. Third, phasing in of a primary surplus rule, calibrated to the path of desired debt reduction, should be seriously considered. Fourth, a current balance rule should be adopted for local self-governments. Finally, compliance with the FRF would need to be monitored by an independent authority.

Language
Englisch

Bibliographic citation
Series: MNB Occasional Papers ; No. 62

Classification
Wirtschaft
Policy Objectives; Policy Designs and Consistency; Policy Coordination
Fiscal Policy
Subject
public finances
macroeconomics
Öffentliche Finanzen
Finanzpolitik
Regelbindung
Welt
Ungarn

Event
Geistige Schöpfung
(who)
Kopits, George
Event
Veröffentlichung
(who)
Magyar Nemzeti Bank
(where)
Budapest
(when)
2007

Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Kopits, George
  • Magyar Nemzeti Bank

Time of origin

  • 2007

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