What are austerity measures?

By Daniel Kurt AAA
A:

Austerity measures are attempts to significantly curtail government spending in an effort to control public-sector debt, particularly when a nation is in jeopardy of defaulting on its bonds.

The global economic downturn that began in 2008 left many governments with reduced tax revenues and exposed what some believed were unsustainable spending levels. Several European countries, including the United Kingdom, Greece and Spain, have turned to austerity as a way to alleviate budget concerns. As a result, their budget deficits skyrocketed. Austerity became almost imperative in Europe, where eurozone members don't have the ability to address mounting debts by printing their own currency. As their default risk increased, creditors put pressure on these countries to aggressively tackle spending.

While the goal of austerity measures is to reduce government debt, their effectiveness remains a matter of sharp debate. Supporters argue that massive deficits can suffocate the broader economy, thereby limiting tax revenue. However, opponents believe that government programs are the only way to make up for reduced personal consumption during a recession. Robust public sector spending, they suggest, reduces unemployment and therefore increases the number of income-tax payers.

Austerity can be contentious for political, as well as economic, reasons. Popular targets for spending cuts include pensions for government workers, welfare and government-sponsored healthcare, programs that disproportionately affect low-income earners at a time when they're financially vulnerable.

RELATED FAQS

  1. What are the main reasons for why there could be a negative gross profit margin and ...

    Find out how to calculate a company's gross profit margin, why a firm might experience a negative margin and how to interpret ...
  2. Where was the Dow Jones when Obama took office?

    Find out the value of the Dow Jones Industrial Average on the Jan. 20, 2009 inauguration of President Obama and how it has ...
  3. Where is cost of living lowest in the world?

    Learn how the cost of living is the lowest in India based on numbers derived from the CPI and organizations like Expatistan ...
  4. What are the key factors that cause the market to go up and down?

    Discover how factors like wars, inflation, government policy, technological change, corporate performance and interest rates ...
RELATED TERMS
  1. Economic Justice

    Economic justice is a component of social justice. It's a set ...
  2. Eurasian Economic Union (EEU)

    An economic union created in 2014 by a treaty signed by Russia, ...
  3. Direct Bidder

    An entity that purchases Treasury securities at auction for a ...
  4. Treasury Direct

    The online market where investors can purchase federal government ...
  5. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  6. Global Recession

    An extended period of economic decline around the world. The ...
comments powered by Disqus
Related Articles
  1. Ebola's Economic Impacts on Liberia, ...
    Economics

    Ebola's Economic Impacts on Liberia, ...

  2. An Introduction to Government Loans
    Economics

    An Introduction to Government Loans

  3. Banquo’s Grain And U.S. Interest Rates
    Economics

    Banquo’s Grain And U.S. Interest Rates

  4. How The IRS Works: Functions & Audits
    Taxes

    How The IRS Works: Functions & Audits

  5. Can Investors Trust Official Statistics?
    Economics

    Can Investors Trust Official Statistics?

Trading Center