Abstract
This paper reviews the waves of democratization and the development of the public administration and public finances in Hungary, with special attention municipalities caused by the changes in sub-national finance regulation since 2010. During the transition yeas, Hungary was very forward looking and the first among CEE countries to end central planning and to introduce market rules into the economy. Everybody expected the decentralization to be a success story. 25 years later, Hungary not only failed to meet the expectations, but also undergone though a situation in 2008 to start a massive recentralization process. This paper puts fiscal decentralization in Hungary in a historical context while critically investigating the findings of recent literatures on decentralization process in Hungary. The critical investigation of past experiences and reform steps of the current government suggest possible reform measures to solve the financial problems of Hungarian municipalities.
Highlights
In Hungary, as in many other Central and Eastern European (CEE) countries, 1990 was a time of euphoria
The second section of this paper describes the Hungarian public administration system and gives an overview of the main laws passed since 1990 concerning municipalities and their effects on municipal finance, describes local borrowing and its regulation in Hungary while in the third section, I evaluate the current changes taking place, and, in the conclusions I make a few suggestions for possible reforms
As we can read in Paulais (2009), in the USA, where property tax provides the largest source of local revenues some municipalities them reported a more than 45% decline compared to previous year
Summary
In Hungary, as in many other Central and Eastern European (CEE) countries, 1990 was a time of euphoria. The associations had real service functions, while micro-regions were created only for statistical reasons, that is, after accession to the EU, Hungary needed a territorial system that corresponded to the EU’s regional policies – a level of organization that could be the recipient of EU regional grants.. 6 A “notary district” in Hungary is a group of municipalities that employs only one person as notary for fulfilling administrative tasks in all of them, saving on administrative expenses These municipalities offer their public services together. According to Hungarian legislation, municipal associations were financed through their members and entitled to state subsidies They cannot levy taxes, making it difficult for them to issue bonds or borrow from a bank for investments.
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