Is it Possible to Adjust ‘with a Human Face’? Differences in Fiscal Consolidation Strategies in Hungary versus Iceland

Martorano, B.
Comparative Economic Studies 57
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Although Hungary and Iceland suffered a similar fall in GDP, their respective governments decided to follow different strategies of adjustment. Each country cut spending according to different priorities. Moreover, the Hungarian government implemented a flat tax reform, while the Icelandic government replaced the previous flat tax system with a progressive structure.

As a result, Iceland met the objectives of the IMF program, while worsening economic conditions forced Hungary to ask for additional external help. In terms of income distribution, social transfers contributed to reducing inequality in Iceland but not in Hungary, while the different tax strategies operated in contrary ways.

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Bruno Martorano

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