2018 Index of Economic Freedom

Hungary

overall score66.7
world rank55
Rule of Law

Property Rights57.6

Government Integrity36.4

Judicial Effectiveness57.1

Government Size

Government Spending29.4

Tax Burden78.6

Fiscal Health82.4

Regulatory Efficiency

Business Freedom61.8

Labor Freedom68.7

Monetary Freedom91.6

Open Markets

Trade Freedom86.9

Investment Freedom80.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 9.8 million
  • GDP (PPP):
    • $270.3 billion
    • 2.9% growth
    • 1.9% 5-year compound annual growth
    • $27,482 per capita
  • Unemployment:
    • 5.2%
  • Inflation (CPI):
    • 0.4%
  • FDI Inflow:
    • $-5313.6 million
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Hungary’s economic freedom score is 66.7, making its economy the 55th freest in the 2018 Index. Its overall score has increased by 0.9 point, with improvements in judicial effectiveness, investment freedom, and labor freedom outpacing lower scores for the government integrity, property rights, and business freedom indicators. Hungary is ranked 26th among 44 countries in the Europe region, and its overall score is below the regional average and above the world average.

Hungary made important reforms to transition from a centrally planned to a market-driven economy, but the government has become more interventionist in recent years. Principal policy objectives include sustaining economic growth and holding down utility prices while managing the budget deficit and public debt to avoid renewed European Union sanctions. The government has indicated that it plans to use sectoral taxes and an increased role for the state to pursue these goals.

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Background

Once part of the Austro–Hungarian Empire, Hungary fell under Communist rule following World War II and became fully independent in 1990 with the collapse of the Soviet Union. Hungary has been a member of NATO since 1999 and a member of the EU since 2004. In the 2014 parliamentary election, the center-right Fidesz-Hungarian Civic Alliance won the majority of seats, and Prime Minister Viktor Orbán, in office since 2010, was able to form a new government. Economic growth is supported both by exports and by domestic demand. Hungary’s construction industry is thriving, and unemployment is low. The Orbán government has taken a more nationalist and populist approach to economic management that sets Hungary somewhat apart from its neighbors.

Rule of LawView Methodology

Property Rights 57.6 Create a Graph using this measurement

Government Integrity 36.4 Create a Graph using this measurement

Judicial Effectiveness 57.1 Create a Graph using this measurement

Hungary maintains a reliable land registry, and secured interests in property, both moveable and real, are recognized and enforced. Judicial independence remains under threat. Cronyism and corruption are serious concerns, as illustrated by the difficulties experienced by business owners who have fallen out of favor with the government and the failure to investigate corruption by high-level government officials.

Government SizeView Methodology

The personal income tax rate is a flat 15 percent. The top corporate tax rate is 19 percent. The overall tax burden equals 39.4 percent of total domestic income. Over the past three years, government spending has amounted to 48.5 percent of total output (GDP), and budget deficits have averaged 2.0 percent of GDP. Public debt is equivalent to 74.2 percent of GDP.

Regulatory EfficiencyView Methodology

The government favors national and government-linked companies in certain industries. Some sectors face shortages of skilled employees. Inflexible labor regulations make adjustments difficult. The market sets most prices, but the government administers prices on tobacco and pharmaceuticals, surcharges in the state-run mobile payment system, and fees related to district heating systems, telecommunications, and electric companies.

Open MarketsView Methodology

Trade is extremely important to Hungary’s economy; the combined value of exports and imports equals 175 percent of GDP. The average applied tariff rate is 1.6 percent. Nontariff barriers impede some trade. In general, government policies do not significantly interfere with foreign investment. The growing financial sector is open to competition, but banks have been negatively affected by special taxes and other regulatory changes in recent years.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Switzerland81.70.2
2Ireland80.43.7
3Estonia78.8-0.3
4United Kingdom781.6
5Iceland772.6
6Denmark76.61.5
7Luxembourg76.40.5
8Sweden76.31.4
9Georgia76.20.2
10Netherlands76.20.4
11Lithuania75.3-0.5
12Norway74.30.3
13Czech Republic74.20.9
14Germany74.20.4
15Finland74.10.1
16Latvia73.6-1.2
17Austria71.8-0.5
18Macedonia71.30.6
19Romania69.4-0.3
20Armenia68.7-1.6
21Poland68.50.2
22Malta68.50.8
23Bulgaria68.30.4
24Cyprus67.8-0.1
25Belgium67.5-0.3
26Hungary 66.70.9
27Kosovo66.6-1.3
28Turkey65.40.2
29Slovakia65.3-0.4
30Spain65.11.5
31Slovenia64.85.6
32Albania64.50.1
33Montenegro64.32.3
34France63.90.6
35Portugal63.40.8
36Italy62.50.0
37Serbia 62.53.6
38Bosnia and Herzegovina61.41.2
39Croatia611.6
40Moldova58.40.4
41Russia58.21.1
42Belarus58.1-0.5
43Greece57.32.3
44Ukraine51.93.8
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