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This paper evaluates policy alternatives to achieve permanent fiscal consolidation in Hungary, based on a general equilibrium calibration. The main finding is that the composition of the consolidation, as determined by the mix of revenue and expenditure measures, has important implications for growth, employment, investment, and other key macroeconomic variables. A reduction in current expenditures yields the smallest GDP contraction in the short term and can increase output in the long term by stimulating labor participation and private investment. On the other end of the spectrum, a consolidation of government investment and corporate taxes are the most costly, as disincentives for private investment result in protracted declines in GDP that compound over time to GDP losses that are multiple times the initial size of the consolidation.

Fiscal policy --- Tax policy --- Taxation --- Economic policy --- Finance, Public --- Government policy --- Macroeconomics --- Public Finance --- Forecasting and Simulation: Models and Applications --- Fiscal Policy --- Efficiency --- Optimal Taxation --- Fiscal Policies and Behavior of Economic Agents: General --- Fiscal Policies and Behavior of Economic Agents: Other --- National Government Expenditures and Related Policies: General --- Debt --- Debt Management --- Sovereign Debt --- Macroeconomics: Consumption --- Saving --- Wealth --- Labor Economics: General --- Public finance & taxation --- Labour --- income economics --- Fiscal consolidation --- Consumption --- Public debt --- Labor --- Government consumption --- National accounts --- Economics --- Debts, Public --- Labor economics --- Hungary --- Income economics