A Comment on High Social Expenditures in Hungary
Ekes, Ildiko, Journal of Economic Issues
Experts [World Bank 1992] are of the opinion that too much money is spent on social expenditures (social incomes(1) plus financially supported consumption and housing) in Hungary and in other Middle and Eastern European countries compared to their level of economic development. Actually, more and more Hungarian economists have come to this opinion. In what follows, I put forward four arguments in opposition to this view.
1. In supporting their statements, the experts at the World Bank
compare social expenditures to GDP calculated by the Hungarian
Central Statistical Office. However, this comparison is misleading
because of the large and growing hidden economy in Hungary (and
in other Middle and Eastern European countries) where the experts
at the World Bank actually accept the existence of it. The
hidden economy increases not only incomes, but production as
well. Although it is part of the economy, the production of goods
and services is hidden from the tax authorities and from official
statistics. Therefore, the actual output of the economy is larger
than that shown by official statistics.
I carried out a sample survey [Ekes 1993] financed by the Hungarian
Academy of Sciences and made an estimate of the extent of
the bidden economy in Hungary in 1992. This estimation used the
results of the sample survey. According to my final calculation, the
invisible incomes of the country amounted to 23-24 percent of the
official GDP. The ratio of the social expenditures to the corrected
GDP is less than indicated by official figures.
Of course, one can argue that hidden economies exist in every
country, and the official figures on GDP are always used in comparing
expenditures for social purposes. However, the relevant
point is the rate of growth of the hidden economy. For some years
now, the hidden economy has been growing fast in Hungary (and
this is the case in other Middle and Eastern European countries
too). Unfortunately, experts know less and less about the actual
performance of the national economy from year to year. In stable
and developed market economies, statistical data on economic
processes are obviously more reliable than those from the countries
in the Middle and Eastern European region. 2. In support of their opinion, the experts at the World Bank use
another international comparison as well. They present the social
expenditures of less wealthy OECD countries as a proportion of
GDP. We must therefore compare Hungary to these countries. We
do not have to worry too much that the World Bank experts used
1986 figures concerning OECD countries; this is probably an appropriate
lag for Hungary.
What is not understandable is why Hungary is said to be the odd
one out here. The proportion of social expenditures in Ireland is
higher than that in Hungary. Such a comparison would be much
more realistic if figures on wages as a proportion of GDP were also
shown in Table 1 so that one could see how GDP is distributed.
Then, one could get a more realistic picture of whether our social
security system is too large or not. What proportion of GDP goes to
consumption? Is a large proportion of GDP really consumed, and
does this hinder investment and economic development in our
country? That is the main charge hidden behind the reasoning by
some World Bank officials.
Table 1. Social Expenditures in the Proportion of GDP in 1986 Country Proportion Greece 16.5 Ireland 26.1 Spain 17.0 Turkey 20.6 Hungary 24.4 Source: A Vilagbank szocialpolitikal jelentese Magyarorszagrol [World …
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Publication information: Article title: A Comment on High Social Expenditures in Hungary. Contributors: Ekes, Ildiko - Author. Journal title: Journal of Economic Issues. Volume: 29. Issue: 3 Publication date: September 1995. Page number: 923+. © 1999 Association for Evolutionary Economics. COPYRIGHT 1995 Gale Group.
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