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.

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