Hungary [antikvár]

ixEXECUTIVE SUMMARYIntroductionHungary's transition from a command economy to a market economy has involved important structural changes in the past few years. Although now recording modest GDP growth, the Hungarian economy experienced a four-year long recession (1989-1993) during which almost one fifth of GDP was lost. These forces have inevitably impacted on the welfare of individuals and their families. Primarily through changes in the labor market - loss of jobs in the state sector, new employment opportunities in the private sector, the emergence of high unemployment and withdrawal from the labor market, deregulation of wages and growing wage dispersion disposable household incomes have declined in the aggregate, and the distribution of market incomes has become more unequal. Yet Hungary, like other countries in Central Europe, inherited an extensive system of cash and in-kind benefit programs that was designed to complement low wages and redistribute large amounts of national income. While this system has cushioned the impact of the transition on households in general, the uniform nature of social transfers has led to their failure in preventing increased poverty among those most negatively affected by the economic changes. Social transfers also impose an enormous burden on public expenditures and the economy, and thwart economic growth. Further, cash transfers have an important impact on household and individual behavior through their incentive effects on labor market activity.How can social transfers be restructured so as to improve their contribution to poverty alleviation, both directly and indirectly, while reducing their impact on the Government budget? This Report attempts to provide some elements of response to this critical question. In doing so, it analyzes the macroeconomic and poverty trends during the period 1989-93, and presents a detailed poverty profile of the population in 1993. Against this background, the report looks at the role of cash social transfers in poverty prevention and poverty alleviation. The report examines the poverty implications of recently agreed changes to cash transfers, and proposes some alternative policy reforms with the objective to improve their contribution to poverty alleviation while reducing their impact on the budget. The report also stresses the importance of achieving poverty reduction through economic growth and associated labor market income gains (new jobs and higher wages). Here too, reducing aggregate expenditure on social transfers, and adjusting elements of transfer programs to encourage pursuit of higher earned incomes (incentive effects) is of equal importance.Poverty Trends and Poverty ProfileIn the years 1989-93, the incidence of poverty (that is, the proportion of the population who falls below a specified household income or expenditure level that defines a "poverty line") increased. For the most part poverty has remained shallow (i.e. incomes or expenditures have fallen only a small distance from the poverty line), but some deep pockets of poverty have developed.The Incidence of Poverty Has Increased. The magnitude of the increase in the incidence of poverty in Hungary is sensitive to the poverty line chosen, the use of income or expenditure data, and to assumptions about income underreporting in household surveys (both recorded and unrecorded in national accounts). Taking the minimum pension as the lowest poverty line, and using unadjusted estimates of income from the 1989 and 1993 Household Budget Surveys, poverty incidence has increased from less than 2 percent of the population in 1989 to over 8 percent in 1993. A poverty line set at approximately one and half times the value of the minimum pension shows that between a third and two