In economics, austerity refers to a policy of deficit-cutting by lowering spending via a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to try to reduce their deficit spending and are sometimes coupled with increases in taxes to demonstrate long-term fiscal solvency to creditors.

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.

Critics argue that, in periods of recession and high unemployment, austerity policies are counter-productive, because: a) reduced government spending can increase unemployment, which increases safety net spending while reducing tax revenue; b) reduced government spending reduces GDP, which means the debt to GDP ratio examined by creditors and rating agencies does not improve; and c) short-term government spending financed by deficits supports economic growth when consumers and businesses are unwilling or unable to do so.

Read more about AusterityJustifications, Typical Effects, Empirical Considerations, Controversy, Austerity Sequence, Balancing Stimulus and Austerity, The "Age of Austerity", Word of The Year, Examples of Austerity

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Famous quotes containing the word austerity:

    I love a gay and sociable wisdom, and shun harshness and austerity in behaviour, holding every surly countenance suspect.
    Michel de Montaigne (1533–1592)

    The very austerity of the Brahmans is tempting to the devotional soul, as a more refined and nobler luxury. Wants so easily and gracefully satisfied seem like a more refined pleasure. Their conception of creation is peaceful as a dream.
    Henry David Thoreau (1817–1862)

    Ought to be written about how this affects
    You when you write poetry:
    The extreme austerity of an almost empty mind
    Colliding with the lush, Rousseau-like foliage of its desire to communicate
    Something between breaths....
    John Ashbery (b. 1927)