What are Austerity Measures?

Austerity, a word that characterises severity or sternness, is used in economics to refer to austerity measures. These are economic policies implemented by a government to reduce public-sector debt, by significantly curtailing government spending, particularly when a nation is in jeopardy of defaulting on its bonds.

Austerity measures, which are considered harsh implementations of economic policy, are intended to reduce the government's budget deficit. These policies can take many forms, such as reducing government spending as well as increasing taxes.

Because austerity measures are considered to be components of contractionary fiscal policy, they are enacted only in desperate times, most often when a government is about to default on its debt.

According to the World Bank, this threshold of default is a ratio of 77 per cent of public debt-to-GDP. When a government increases its taxes it generates more revenue. When a government reduces its spending, it has more money to pay down its debt.

Reducing government spending can take on many forms. It usually results in cutting non-essential programs. This includes cutting or freezing the wages of government employees, cutting back on government programs, such as programs for veterans, the homeless, and national parks, a freeze on hiring, and a freeze on pensions.

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.

Though austerity measures can control a government's budget, it makes the day-to-day life for citizens difficult.

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, turned to austerity as a way to alleviate budget concerns.

The United States implemented austerity measures during the depression that occurred from 1920 to 1921. From that period, unemployment jumped from 4 per cent to 12 per cent and gross national product (GNP) declined by 17 per cent.

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