During the 1990s, inflation and balance-of-payments crises in developing and transition economies created strong pressures for fiscal reform. In the early reform period, the policy debate centered on how rapidly to undertake fiscal adjustments; subsequent political economy analysis focused on the conditions under which governments were more or less likely to succeed in these efforts. However, a parallel debate typically ensued over the institutions and procedures of the budget process itself. How could these institutions be designed to effectively coordinate demands on government resources and bring them into line with overall macroeconomic objectives? In this study, we examine the politics of fiscal policy in Hungary since 1990, looking both at policy and at the design of policy-making institutions. Throughout, we seek to place Hungary's experience in the broader comparative perspective of other Central European and middle-income developing countries.

Effective fiscal policy making requires that governments respond quickly to crises with an appropriate – typically contested – combination of expenditure reductions and tax increases and that they reconcile competing demands on government resources with adequate revenues over the long run. We expect that the capacity of governments to perform these tasks will be related both to general features of the political system but also to the specific institutions and procedures surrounding the budget process.

Fiscal-policy-making institutions vary in terms of the degree to which they centralize control over the planning, approval, and implementation of the budget.