page_title: Austerity
section_title: Europe
hierarchical_section_title: Austerity / Empirical considerations / Europe
caption_attribution_description: English: Relationship between fiscal tightening (austerity) in Eurozone countries with their GDP growth rate, 2008-2012
context_page_description: Austerity is a set of political-economic policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both. Austerity measures are often used by governments that find it difficult to borrow or meet their existing obligations to pay back loans. The measures are meant to reduce the budget deficit by bringing government revenues closer to expenditures. This reduces the amount of borrowing required and may also demonstrate a government's fiscal discipline to creditors and credit rating agencies and make borrowing easier or cheaper as a result.
  In most macroeconomic models, austerity policies which reduce government spending lead to increased unemployment in the short term. These reductions in employment usually occur directly in the public sector and indirectly in the private sector. Where austerity policies are enacted using tax increases, these can reduce consumption by cutting household disposable income. This also tends to reduce employment in the short term. Reduced government spending can reduce GDP growth in the short term as government expenditure is itself a component of GDP.
context_section_description: A typical goal of austerity is to reduce the annual budget deficit without sacrificing growth. Over time, this may reduce the overall debt burden, often measured as the ratio of public debt to GDP.
caption: Relationship between fiscal tightening (austerity) in Eurozone countries with their GDP growth rate, 2008–12[37]
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