The Safety Net During Transformation: Hungary

Most Eastern European countries face the double difficulty of attempting systematic • transformations while facing severe external constraints and the need to reduce domestic absorption. Safety nets to protect vulnerable groups are important to sustain political concensus and to offset adverse distributional impacts created as social income determination is replaced by the market and public finances are put under strain. This research examines the political transformation and safety net programs, in Hungary and how they have effected • income distribution. A comparison of income distributions of Hungary and the United Kingdom reveals that benefits in-kind along with taxes are more progressive in the UK than in Hungary, while the before tax distribution of incomes is more equal in Hungary. These comparisons suggest that Hungary relies too heavily on subsidized wages, rather than on taxes, to achieve egalitarian goals. The further privatization of firms with its removal of • wage subsidization will, without additional safety net programs, further skew Hungary's income distribution, perhaps contributing to political instability. •