Fiscal consolidation and public sector reform in Hungary

The paper deals with fiscal consolidation in Hungary. A special interest is paid on the influence of the EU and IMF on the national government’s decision-making. The research is centred around the questions of how did the EU... [ view full abstract ]

The paper deals with fiscal consolidation in Hungary. A special interest is paid on the influence of the EU and IMF on the national government’s decision-making. The research is centred around the questions of how did the EU and IMF affect the national governments’ decision-making about fiscal consolidation and how did the budgetary decisions affect public sector reforms? Three levels are analysed: the political influence of the EU on the national government, the political decision-making at national level and the politics of implementation. The research is based upon the analyses of official documents and upon interviews with actors involved on both sides.
Hungary provides an interesting case to investigate: its large-scale and lengthy fiscal consolidation (2006-2013) contained a fair dose of public sector reforms. The whole process was initiated and was carried out upon the political pressure of the EU and it was supplemented by an IMF bailout package in the aftermath of the financial crisis (2008-2010) with an elevated level of external influence on domestic policy making. The adopted fiscal consolidation and public sector reform policies were influenced by various external sources, such as the general Europeanization-process and the transplantation of good governance practices. Nevertheless, apart from the 2008-2010 bail-out programme, both the actual design of fiscal consolidation efforts and the substance of the related public sector reforms were mainly subordinated to the inherent political agenda of the key domestic political decision-makers. In the same time, the effectiveness of the implementation procedures displayed a large degree of variation depending on the political power relations of the major domestic actors.