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This study defines various fiscal indicators for different analytical purposes, adjusting for the distorting effect of creative accounting. It presents these indicators using the example of Hungary. The study abandons the general view that an identical balance is produced from the two traditional definitions of the general government deficit, as deficit indicators resulting from the flow of funds calculated as the balance of revenues and expenditures (above the line) and changes in financial assets and liabilities (below the line) may vary. Firstly, the treatment of the loss of contributions transferred to private pension funds causes a difference, as in contrast to a tax cut, this does not constitute a flow of funds, but nevertheless increases the amount of public debt. Secondly, while accrualbased accounting is justified for defining assets and liabilities, accrual-based and cash-flow recording may be applied in relation to flow of funds, depending on which is more appropriate for estimating the effect or fiscal impulse on the economy. Accrual-based accounting adjusts fluctuations in cash-flow recording, but it identifies the economic impact only if there are neither liquidity constraints nor unexpected fiscal measures in the economy. In this case namely, the economic agents do not react to cash-flow fluctuations. If, however, the economic agents are either subject to liquidity constraints or unexpected measures are taken, they are also affected by the sudden changes in cash-flows. Contrary to conventions, the study draws a distinction between the two types of deficit indicators through the introduction of different terms. It continues to define the indicator identifying flow of funds as deficit, while it terms changes in assets and liabilities as a financing requirement. On the one side, the indicator defined as deficit constitutes the basis of the calculation of the impact on the economy and external balance ('impulse'). The composition of this fiscal impulse plays a decisive role, particularly the impulse on households and changes in indirect taxes. On the other side, the analysis of the financing requirement - that is, changes in assets and liabilities - provides the basis for determining which revenues and expenditures are deemed to be temporary and which are of a permanent ('underlying') nature. The study determines the categories of the augmented deficit, indicating flow of funds, and the augmented financing requirement, measuring changes in financial assets and liabilities, on the basis of the IMF method for filtering the effects of creative accounting. Statistical recording, namely, needs to be augmented with the financial requirement of organisations conducting quasi-fiscal operations and the simultaneously accumulating quasi-fiscal debt. The 'one-off' capital transfer related to the subsequent assumption of this quasi-fiscal debt needs to be filtered out. In our experience, the augmented deficit has advantage of being consistent in a macroeconomic sense and methodologically more stable than the statistical deficit, as the latter frequently requires revisions. Naturally, the actual figures of the augmented deficit may change to a certain degree, as the analytical adjustments need to augment data with estimates in the case of the quasi-fiscal operations and creative accounting. As a favourable change in relation to the data requirement, from 2010 the official budget accounting includes public investments which are statistically recorded as private investments.

I study the short-term impact of surprise inflation on the primary balance by separating those budgetary items which immediately respond to inflation from non-responding ones. I assume a passive fiscal policy in a one-year horizon; therefore items fully controlled by the central government are treated as non-responding ones. In the case of the private sector and decentralised government, their responses to inflation depend on decisions. [.]

The Hungarian tax system has undergone significant changes in recent years. The weight of labour taxes decreased by 3.3 percentage points, while the weight of consumption taxes increased by 3.7 percentage points between 2007 and 2012. This type of tax shift is not a country-specific one, but its rate is one of the largest in Europe. This study gives a brief overview of literature, followed by a presentation of the Hungarian tax structure in an international comparison, and a summary of the main changes of the tax system and relating measures, which entered into force after 2010. Then, in addition to the tax centralization indicators published by the Eurostat, an adjusted tax centralization indicator for the EU states is presented, which eliminates the tax component of public spending and transfers, takes into account the mandatory private pension contribution and compares the adjusted tax burden to the corresponding private tax base.

Cyclically adjusted budget balance (CAB) is a widely cited and widely used concept in the evaluation of fiscal situations. The key idea behind it involves the identification of potential levels of economic variables. There are two recently used methods: the aggregate approach and the unconstrained disaggregate approach. In this paper we apply them on USA, Japan and 25 EU member countries to demonstrate that both approaches could be the source of considerable bias. While the aggregate approach cannot cope with different shocks, the unconstrained disaggregate method involves systematic bias and do not contain theoretical consideration. In order to avoid these distortions we present an alternative framework, which is able to incorporate the advantages of both approaches. Combining arbitrary output gap and constrained multivariate HP filter induces theoretically motivated disaggregation where we also exploit the implication of production function parameterisation. We found that the price effect resulting from the composition effect of different deflators could play an important role in evaluation of the fiscal position. To display the importance of composition effect we analyse the cyclical components of Finnish, Hungarian and Italian budget balances more in detail.

In this paper we investigate the possible effects of fiscal tightening in Hungary from two perspectives. First, simulations in an estimated neo-Keynesian model are used to characterise the effects of different scenarios for fiscal consolidations. We show that the composition of fiscal shocks is important for both the economic outcome and monetary policy. These simulations suggest a modest output cost of fiscal consolidation. Then we take a closer look at the non-Keynesian effects and their relevance for Hungary in a qualitative way. In our review of non-Keynesian channels of fiscal adjustments we conclude that expansionary effects are likely to become evident only in the medium or long run, rather than immediately after measures are taken.