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FISCAL POLICY IN FOCUS - Dispute
Burdensome Legacy. Political and Economic Changes Through the Glasses of a Financial Policy Maker

Katalin Botos
Professor Emerita, University Professor, University of Szeged, Pázmány Péter Catholic UniversityPublished in: Public Finance Quarterly 2015/4 (p. 482-491.)


SUMMARY: The political and economic changes 25 years ago left a burdensome legacy with an impact still felt today. This legacy includes the huge national debt and the failure to complete a price and wage reform. This study aims to dispel myths about the first government failing to request debt forgiveness and prove that making such a request was not a viable option during the first years of the changes. It shows that there were some initial ideas about implementing a wage and price reform, because wages did not include many cost items commonly integrated into them in a market economy including housing, healthcare and education. Interestingly, the study proves that it would have been possible to carry out a reform in 1990 by increasing wages and reducing contributions at the same time. As this did not happen, Hungarian wage levels remained low compared to those in Western Europe. As a result, the “reform” of large systems was confined to hard-to-implement austerity measures resulting in lower living standards.

KEYWORDS: tax cut, wages and price reform, reforming large systems

JOURNAL OF ECONOMIC LITERATURE (JEL) KÓD: H5, H63, E31, E24

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