2015 Index of Economic Freedom

Hungary

overall score66.8
world rank54
Rule of Law

Property Rights55.0

Freedom From Corruption54.0

Limited Government

Government Spending25.9

Fiscal Freedom78.7

Regulatory Efficiency

Business Freedom74.5

Labor Freedom67.7

Monetary Freedom79.2

Open Markets

Trade Freedom88.0

Investment Freedom75.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 9.9 million
  • GDP (PPP):
    • $198.2 billion
    • 1.1% growth
    • -1.0% 5-year compound annual growth
    • $20,065 per capita
  • Unemployment:
    • 10.5%
  • Inflation (CPI):
    • 1.7%
  • FDI Inflow:
    • $3.1 billion
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Hungary’s economic freedom score is 66.8, making its economy the 54th freest in the 2015 Index. Its score is down by 0.2 point from last year, with declines in property rights, business freedom, fiscal freedom, and the control of public spending outweighing improvements in monetary freedom, labor freedom, and freedom from corruption. Hungary is ranked 25th out of 43 countries in the Europe region, and its overall score is above the world average but below the regional average.

Hungary’s economic freedom peaked in 2013, and declines in the past two years, particularly in property rights and business freedom, have raised questions about the momentum for further reform.

Hungary’s longer-term economic transition to an open market economy has been highlighted by improvements in the trade and investment regimes. The business environment is relatively encouraging to entrepreneurship and risk-taking, and capital markets are developed and open to foreign investment. Concerns about the rule of law have been increasing over the past few years, and the government has been struggling with a burgeoning budget and foreign currency debt.

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Background

Hungary has been a member of NATO since 1999 and a member of the European Union since 2004. The April 2014 parliamentary election was held in accordance with a new constitution, which went into force in January 2012. The center-right Fidesz–Hungarian Civic Alliance won the majority of seats, and Prime Minister Viktor Orbán, who has been in office since May 2010, formed a new government. Despite achieving broad electoral support, Orbán so far has achieved only limited economic success. Hungary exited from recession in early 2013, but with only a modest recovery. The low-skilled labor supply greatly exceeds demand, generating high unemployment. Hard currency indebtedness remains a key vulnerability.

Rule of LawView Methodology

Property Rights 55.0 Create a Graph using this measurement

Freedom From Corruption 54.0 Create a Graph using this measurement

Hungary ranked low among EU members in Transparency International’s 2013 Corruption Perceptions Index, partly because government watchdog institutions are weak and headed by party loyalists. Corruption has long been rampant in public procurement and state aid; in 2014, it was estimated that firms routinely pay bribes of up to 20 percent of a project’s value. Recent reforms have undermined the independence of the judiciary.

Limited GovernmentView Methodology

Hungary’s individual income tax rate is a flat 16 percent, and its top corporate tax rate is 19 percent. Other taxes include a value-added tax and a property tax. Total tax revenues equal 38.9 percent of domestic output. Government expenditures are equivalent to 49.7 percent of domestic income, and public debt equals 79 percent of gross domestic product.

Regulatory EfficiencyView Methodology

The entrepreneurial framework is relatively transparent and efficient. Starting a business takes four procedures and five days on average, but licensing can be time-consuming. The labor market lacks flexibility, but the non-salary cost of employment is not high in comparison to other countries in the region. Hungary will receive nearly €2 billion in agricultural subsidies from the EU between 2014 and 2020.

Open MarketsView Methodology

EU members have a 1.0 percent average tariff rate. Although some non-tariff barriers exist, the EU is relatively open to external trade. Foreign and domestic investors are generally treated equally under Hungarian law. The financial sector is dominated by banks, many of which are foreign-owned. The banking sector remains plagued by low profitability and uncertainty. Since 2010, commercial banks have suffered from higher taxes.

Country's Score Over Time

Bar Graph of Hungary  Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Switzerland80.5-1.1
2Estonia76.80.9
3Ireland76.60.4
4Denmark76.30.2
5United Kingdom75.80.9
6Lithuania74.71.7
7Germany73.80.4
8The Netherlands73.7-0.5
9Finland73.40.0
10Luxembourg73.2-1.0
11Georgia730.4
12Sweden72.7-0.4
13Czech Republic72.50.3
14Iceland72-0.4
15Norway71.80.9
16Austria71.2-1.2
17Latvia69.71.0
18Belgium68.8-1.1
19Poland68.61.6
20Cyprus67.90.3
21Spain67.60.4
22Slovakia67.20.8
23Armenia67.1-1.8
24Macedonia67.1-1.5
25Hungary 66.8-0.2
26Bulgaria66.81.1
27Romania66.61.1
28Malta66.50.1
29Albania65.7-1.2
30Portugal65.31.8
31Montenegro64.71.1
32Turkey63.2-1.7
33France62.5-1.0
34Italy61.70.8
35Croatia61.51.1
36Slovenia60.3-2.4
37Serbia 600.6
38Bosnia and Herzegovina590.6
39Moldova57.50.2
40Greece54-1.7
41Russia52.10.2
42Belarus49.8-0.3
43Ukraine46.9-2.4
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