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The 2013 Index of Economic Freedom, published by the Heritage Foundation and the Wall Street Journal, grades ten separate benchmarks of economic freedom in 185 countries across the globe. The rankings take into consideration factors such as the rule of law, regulatory efficacy, the role of government, and the state of markets. This year, Hungary was given an economic freedom score of 67.3, making it the 48th most economically free country in the world (7.7 points better than the global average) and the 24th freest in Europe (1.1 points better than the European average).
The report this year praised Hungary’s “high-quality institutional infrastructure” and its “thriving private sector.” The authors also noted Hungary’s competitive trade regime and scored Hungary’s “trade freedom” at 86.8, the 11th best in the world (trade freedom is a composite measure of the absence of tariff and non-tariff barriers that affect imports and exports of goods and services). Overall, Hungary ranks above Western European counterparts France and Italy, countries heavily affected by Europe’s sovereign debt crisis. However, the report criticized Hungary’s ballooning government spending and fast-rising borrowing costs; Hungary’s government spending ranking makes it the 153rd worst in the world in that category. The report also expressed concern about corruption and a decrease in property rights, noting that concerns about government procurements have been persistent despite efforts to fight corruption more effectively. Blaming recent “crisis taxes” for undermining confidence in the tax regime, the report called such policies “unpredictable and discriminatory.” It suggested that short-term deficit reduction strategies have been ill conceived and ineffective, and insisted on “responsible long-term budget reform” in order to address the deficit.
The changes from last year’s rankings were slight; in 2012, Hungary scored a 67.1 and ranked 49th in the world.
Hungary’s overall ranking placed it in the “moderately free” category, which it shared with neighboring Croatia, Romania, Slovakia, and Slovenia. Ukraine was in the “repressed” category overall, while Hungary’s Austrian neighbors scored a “mostly free” label. Poland trailed Hungary with a score of 66 and a world rank of 57; the report noted that Poland achieved the 10th largest score improvement in the 2013 rankings, with low trade barriers and light regulatory burdens, but criticized runaway government spending and an “inefficient judicial system.”
The picture of Central Europe painted by the 2013 Index is a cautiously optimistic one. Most CEE countries saw modest improvements from their 2012 scores, and several made positive moves towards controlling government spending. The region as a whole performed better than North Africa, the Middle East, Sub-Saharan Africa, South and Central America, and most of the Asian and the Pacific states. The United States ranked 10th in the world, doing slightly worse than last year, after being downgraded from “free” to “mostly free” in the 2010 rankings. Germany, Switzerland, Northern European states, Canada, and regional standouts like Australia, Hong Kong, and Singapore all came in towards the top of the rankings.
–Travis LaCouter is the Managing Editor of Paprika Politik