Financing of the general government

Abstract

This volume of essays and studies raises an extremely exciting and important economic poli-cy question of our days: How is it possible to sus-tain the financing of the Hungarian state, how is it possible to avoid national bankruptcy by excluding external indebtedness? The authors’ answer is simple and comes straight to the point: the economy has to be freed from corruption; employment and growth have to be increased by creating new jobs, and all employers and employ-ees have to be taxed. Each study in the volume presents new ideas and thus, as the authors also put it, disputable approaches as well. The ques-tion is whether we can come to the right conclu-sions if we only mechanically examine the opti-mal tax system from a practical aspect, i.e. disre-garding theoretical considerations, the effect of the tax system on the efficiency of production, and the so-called Ramsey (1927) rule. In the spirit of the above I am disputing some of the thoughts raised in the studies, and I am expounding on some of their economic policy proposals. As a Prelude to the volume, Tamás Bánfi examines the choices between the competitive-ness of the Hungarian economy and the financ-ing of the tasks of the state through regulating the degree of taxation. This simply means that tax increases reduce the competitiveness of the economy, but add to state financing, whereas tax cuts induce an opposite process. How can this paradoxical situation be resolved?Knowing the Hungarian employment and tax policies, the answer is an almost trivial formu-la: the total amount of taxes can be increased even if the tax burden is reduced, provided that the expansion of the scope of taxpayers entails a greater increase in the total amount of taxes.