Is it possible to adjust ‘with a human face’? Differences in fiscal consolidation strategies between Hungary and Iceland

Publication date: 2014_03
Publication series:
Innocenti Working Papers
No. of pages: 22
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Abstract
Before the recent economic crisis, Hungary and Iceland were considered to be two excellent models of development. Hungary and Iceland were among the countries affected earliest and most by the recent macroeconomic shock, suffering a similar drop in GDP.While the Hungarian government implemented a flat tax reform in order to stimulate economic activity, the Icelandic government replaced its flat tax system with a progressive one increasing the participation of high income groups in the adjustment process. The aim of this paper is to compare the opposite adjustment paths followed by Hungary and Iceland on selected outcomes.
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