Hungary-The Third Economy

A semilegal or illegal "third economy" operated in Hungary as it did in other communist countries. Activities in the third economy included holding unofficial second jobs, moonlighting on vacations and sick leave, performing outside work during work hours, dealing in illegally imported or pilfered goods, lending money at high rates, renting property illegally, evading taxes, and bribing or "tipping" doctors, lawyers, store clerks, and others. In a 1983 survey, 60 percent of hospital patients admitted they had paid their doctors even though Hungary had free national health care. Many of those active in the third economy had become relatively rich, and tension sometimes arose between the third economy's "haves" and the law-abiding "have-nots." The press attributed the third economy's existence to three main factors: shortages of certain goods and services, an inflation rate that made supplementary income necessary, and the fact that many enterprises possessed monopolies on certain goods and services.

Hungary's Economic Research Institute has estimated that in the early 1980s Hungarians generated the equivalent of about US$2 billion per year in unreported income, which equaled about 20 to 25 percent of their total income and 16 percent of domestic net material product. The newly enacted personal-income and value-added taxes were in part an attempt to tax unreported incomes, and the government created a special office to investigate persons who displayed expensive tastes but reported relatively low incomes (see Economic Regulators , this ch.). Many pro-reform economists opposed measures to snuff out illegal economic activities, arguing instead for liberalizing private-enterprise laws to include many activities considered illegal.

Data as of September 1989