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This article concerns the changing conditions of fiscal sovereignty within the Eurozone in the context of the evolution of the EU's institutional crisis-management framework during the recent financial crisis. It begins with a method-of-difference approach to compare the dynamics and outcomes of the crisis in the Greek and Hungarian economies, on the basis of their similarly troubled fiscal positions and domestic political environments. On this basis, an argument is made that the outcomes in Greece (i.e. a breakdown in national fiscal sovereignty and severe economic losses) were not an inevitable product of the economic fundamentals, but at least partially attributable to uncertainty about the extent and expedience of financial assistance through the Eurozone's crises management institutions. The European Central Bank's (ECB) 2012 declaration of “unlimited support” for Eurozone governments has done much to calm markets, but has also created an institution with an ambiguous and self-imposed “dual-mandate”. This article concludes that the precedent established by the last crisis has created a fraught situation, leaving the Eurozone without viable options that are both economically efficacious and politically legitimate. Relying on either the ECB or the European Stability Mechanism to manage any future crisis could well provoke a backlash among the Eurozone member states as national fiscal sovereignty is eclipsed by ever-deeper ad hoc financial commitments on the part of the institutions of crisis management.

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Editor's Note: This essay paper of Professor Kornai with an unusually provoking title consists of two parts. Part I is the slightly edited, non-abridged version of his writing published as an oped in The Financial Times (FT) on 11 July 2019, the world's leading global business publication (Kornai 2019a). Subsequently, the full text of this paper was published in the Hungarian weekly magazine Élet és Irodalom (Life and Literature; Kornai 2019b), which in turn generated a number of commenting articles published in the same weekly. Still in the month of July, the original essay was translated into Chinese by a Hong Kong newspaper and into Vietnamese. An influential multilingual Chinese newspaper gave an extensive summary of the FT essay (Street 2019). The latter one, according to our best knowledge, was disseminated only on the internet. Part II is the translated and slightly edited version of Kornai's second article, published in September this year on the same topic (Kornai 2019c). In this second essay he responded to his critiques both in Hungary and world-wide. This piece was published in its original form in Hungarian by the previous mentioned Hungarian weekly. We, the Editors of Acta Oeconomica, are proud to publish the complete English translation of this second essay first time. We thank for the opportunity given to us by Professor Kornai to publish the Frankenstein-papers in an integrated form, together with all the necessary bibliographic references.

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This paper addresses the hottest potato of economics today, namely why the profession seems to have been lulled into a sense of false security in spite of flourishing economic models as well as subfield-knowledge in various disciplines? The embarrassing question of the Queen of England ‘why did nobody see the crisis of 2008 coming’ emblematically signalled the failure of the collective imagination of the entire profession to understand the system and its emerging patterns. The present paper can be seen therefore as a clarion call for grounding a shift towards an economics barded with the lessons learnt in complexity science in shaping modern governance.

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Have we reached the point where more spending on health care and other forms of social protection is not producing better health as measured by reductions in population mortality? Drawing on two decades of research and mortality statistics (1995–2015) for 17 OECD countries, our analysis confirms and builds on the observed relationship between the returns and investments in health and social welfare spending. First, the results suggest that there is a differential effect of socioeconomic, lifestyle and demography variables on total and cause-specific mortality rates. Second, the basic premise of an association between health care expenditure and mortality rates is reinforced in models that take into account public-only health expenditure and its impact on older age groups. Third, a strong protective effect of government-sponsored welfare expenditure on infant mortality was observed. This effect is weaker on other causes of death and suggests that older individuals, in this sample of developed countries, may have reached a stage of the epidemiological transition in which health improvement is indifferent to government assistance and depends largely on behavioural change.

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Guarantees of origin are tradeable energy certificates defined by directives 2009/28/EC and 2018/2001/EU of the European Union. They serve the aim of informing final consumers on energy sources used for their electricity supply. They are also expected to encourage new investments in renewable electricity generation. This paper investigates how the use of guarantees of origin meets these expectations. A literature review, an analysis of related regulations and an evaluation of empirical data shows that there are regulatory failures both at national and the European Union levels. Furthermore, due to a contradiction between certain rules in European Union level regulation, consumers receive unreliable information on their electricity consumption mix. Therefore, although national rules should be improved, the problem of reliability cannot be resolved until the Union level framework is modified. Furthermore, the present framework does not incentivise investments in renewable energy technologies either. Accordingly, recommendations are formulated for policy makers to ensure reliable and sufficient operation of the certificate system.

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There has been an increase in outward foreign direct investment (FDI) and in the number of locally-owned or controlled multinationals in the Czech Republic and Hungary. However, data problems hinder to determine accurately the underlying trends and the main factors behind the changes. Data on outward FDI contain investment realised by all locally operational firms, regardless of their ownership. We rely on newly available balance of payments manual 6 (BPM) data and on company case studies. We show that outward investment by Czech firms must be much higher than what balance of payments data show. Hungary's case is the opposite. The leading Czech and Hungarian foreign investor firms can be categorised as “virtual indirect” foreign investors: they are in majority foreign ownership, but under domestic control. The reason for this special type of firms dominating in outward foreign direct investments can be found in the privatisation technique applied in these countries during the transition process.

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This paper deals with the possible existence of political budget cycles (PBCs) within the European Union (EU). I use panel data for 28 EU countries from 1995 to 2016 and provide estimates based on dynamic panel regressions. I employ a system-GMM estimator complemented by the Principal Component Analysis (PCA) to limit the number of instruments. The specifications include structural budget balances related to the potential GDP, thereby limiting the initial endogeneity. These measures capture the true motivation behind fiscal policies. The results suggest that the EU member states exhibit PBCs: (i) the intervention occurs in the year before elections and (ii) the structural budget balance to the potential GDP ratio is lower by −0.41 percentage points a year before elections. In addition, I have investigated the EU fragmentation in terms of the PBCs and selected 8 countries’ characteristics correlating to the existence of these cycles. These include lower GDP per capita, post-communist background, low tax burden, high perceived corruption, low levels of media freedom and internet usage, lower number of directly voted-in legislative officials, and a low parliamentary voter turnout.

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The paper aims to analyse state-owned enterprises (SOEs) in 11 post-socialist Central-Eastern European (CEE) countries. Based on the individual data of large non-financial companies, we estimated the real state share in the years 2014 and 2015. We consider both direct and indirect state ownership and apply an explicit classification of companies as majority and minority state-owned, which is neglected in a lot of research. The countries with the highest values of the ‘Country SOE index’ were Slovenia and Latvia, while the lowest were Lithuania and Hungary. State ownership is dominant in transportation and storage and energy supply. The lower return on assets (ROA), return on equity (ROE) and return on capital employed (ROCE) ratios of SOEs imply that capital in this group of companies is used less efficiently. Furthermore, they are characterised by higher wage costs. At the same time, SOEs have higher earnings before interest, taxes, depreciation and amortization (EBITDA) margins and better ability to turn operating revenue into cash than their privately-owned counterparts.

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The length, the composition, the quality and the characteristics of value chains essentially determine the corporate as well as the macroeconomic performance of the economic sectors and industries. Hungary has a strong tradition in the pharmaceutical industry but its dynamising impact seems to be limited on the economy. The aim of this paper is to detect and reveal the specialties of the Hungarian pharmaceutical industry both in space and time by a value chain analysis. Our method is partly quantitative, we use an input-output analysis; and partly qualitative, relying on interviews with the representatives of pharmaceutical companies. We found that the Hungarian pharma value chain is really special, having relatively short backward and forward linkages with mainly indirect value-added contribution as well as high import content of exports. However, our company interviews revealed the fundamental differences between original and generic value chains – i.e. again a pharma industry-specific distinction. Having relatively little original and more substantial generic production in Hungary explains much of the value chain specialties, which leaves its mark on the limited impact of the industry on the national economy.

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