The study analyses the impact of water management on the long-term budgetary balance. The issue is becoming increasingly pressing as both decreasing natural resources and the impacts of climate change are becoming significantly risky issues in the area of long-term fiscal sustainability.

In case of making the use of natural resources, the main question is whether the management of economic instruments with state owned natural resources and stocks meets the criteria of preserved exploitation.

The study examines the operation and impact of water management on public finances along three lines of the sector:

1. water utility functions; water and wastewater services,
2. flood prevention,
3. water resources management (groundwater and surface water as well).

Our work quantifies the impact of water utility investments on the country’s macroeconomic processes and especially on the budget by using the HÉFA-CGE model. According to the main results, without investments, the already underestimated value of the sector’s capital stock could be reduced to less than a half by 2035 which means that the total number of expected breakdowns and water quality problems could drastically increase. This requires costly adaptation by consumers furthermore it would negatively effect on the productivity of taxpayer sectors.

The study was presented by Gábor Balás, CEO of HÉTFA at the conference co-organised by the Fiscal Council of Hungary and The Hungarian Economic Association. The presentation is available here (in Hungarian).

The CGE macromodels are based on macroeconomic principles that is the economic processes in the model are deducted from the individual decisions of the actors. The data describing the income flows among the economic actors serve as the basis of the model. With this data, it can be shown how the sudden and significant change (shock) in one sector of the economy influences the other sectors.

In the HETFA Working Paper using this model, Klára Major and Luca Drucker analysed the macroeconomic impact of the electricity outages. According to their results, the 2% setback of the energy supply leads to a 0,54% decrease in the GDP. This decrease is explained by the fact that the production and the consommation of most of the services and products require energy. The amount of this decrease depends significantly on the fact that the different actors reduce their comsommation and production on a different scale.

Major, Klára & Drucker, Luca Flóra: Macroeconomic impact of electric power outage – simulation results from a CGE modelling experiment for Hungary, 2015, HETFA Working Paper Series No. 12.

Economic Review. [Közgazdasági Szemle LX. évf., 2013. szeptember (965—991. o.).]

Economic development programmes generally define job creation as the solution for increased employment, however, it is only one of the transmission mechanisms of economic policy. By applying a spatial econometrics model for the Hungarian labour market (which is based on some key figures of the previous twenty years of the Hungarian labour market and a macroeconomic prognosis), the study examines the relationship between the spatial differences in the demand for labour and the actual employment, as well, as the potential employment effects of job creation. The model is estimated on a microregional panel data set. The results show the significant but moderate effects of job creation. Both employability of labour and the macroeconomic conjuncture are channels of greater importance. It is also proven by the analyses that only a small part (less than ten percent) of jobs created by job creation programmes increases employment on the long run, moreover, the majority of them does not necessarily improve the rates locally but in those neighbouring microregions where labour force surplus is larger. With the exception of bigger cities and especially the capital, labour markets indicate the scarcity of employable labour force which is strengthened by the increasing volume of subsidies. In the middle of the decade, prospects of national job creation programmes are rather unpromising, therefore the achievement of employment related goals of development policy requires the use of other channels.

Employability of labour force and macroeconomic conjuncture are channels of greater importance in increasing the rate of employment than direct job creation measures. Analyses conducted by our researchers proved that only a small part (less than ten percent) of jobs created by job creation programmes increased employment on the long run, moreover, the majority of them did not necessarily enhance the rates locally but in those neighbouring micro regions where labour force surplus was larger.

The interview was carried out by portfolio.hu following the publication of the study of Klára Major and Tamás Tétényi in the Economic Review. The summary of the study is available in English.