Economic Structure and Fiscal Autonomy A Typology of the Economic Structures of Hungarian Municipalities and Their Financial Dependence on the State

Abstract

The revenues of Hungarian municipalities derive largely from their own sources—primarily the local business tax—which is based on the structure of the local economy. This study examines how the economic structure of municipalities affects the fiscal autonomy of their local governments. Based on the population of active businesses, the author identified four types of municipalities and compared their fiscal indicators—with nearly complete national coverage—using analysis of variance, pairwise comparisons, and size-adjusted covariance analysis. He concluded that the local tax base and dependence on transfers differ significantly by type. Industrial and service-oriented municipalities represent the two extremes of fiscal autonomy, while agricultural and diversified municipalities occupy an intermediate position, with similar circumstances. This difference persists even after controlling for size. Structural economic development is necessary to mitigate regional disparities, as the allocation of resources alone cannot resolve structural disadvantages.