Austerity
For other uses, see Austerity (disambiguation).
For the current opposition to present-day austerity measures, see Anti-austerity protests.
In economics, austerity refers to a policy of deficit-cutting by lowering spending often via a reduction in the amount of benefits and public services provided.[1] Austerity policies are often used by governments to try to reduce their deficit spending[2] and are sometimes coupled with increases in taxes to demonstrate long-term fiscal solvency to creditors.[3]
Supporters of austerity predict that under expansionary fiscal contraction (EFC), a major reduction in government spending can change future expectations about taxes and government spending, encouraging private consumption and resulting in overall economic expansion.[4]
Critics argue that, in periods of high unemployment, austerity policies are counter-productive, because deficit cutting reduces GDP (which, Paul Krugman thinks, typically means less tax revenue to pay off the debt); and that short-term stimulus is necessary to deal with deficits in the long-term.[5]
"Austerity" was named the word of the year by Merriam-Webster in 2010.[6]
