Local Government Finance in Hungary: Okun Revisited

Fundamental change in the economic systems of the nations-of central Europe is now taking place. The economic transition has broad social and cultural consequences, among these the alteration of local government service provision and financial management. In this article, the authors describe some of the fiscal characteristics of local governments in Hungary with an analysis of the dilemmas of transition. Efforts to create and enhance local government financial management capability are detailed. This article portrays the difficulty of developing a fully operational market economy within a democratic context in the post-Communist era while, at the same time, maintaining social protection for citizens through the continued provision of a wide array of social benefit programs. The essential dilemma for local government social program managers and budget officials is that service demand far surpasses the financial resources available to continue services at the levels to which people grew accustomed under the Communist regime.