Austerity
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. Three primary types of austerity measures are higher taxes to fund spending, raising taxes while cutting spending, and lower taxes and lower government spending. Austerity measures are often used by governments that find it difficult to borrow or meet their existing obligations to repay loans. The measures are meant to reduce the budget deficit by bringing government revenues closer to expenditures. Proponents of these measures state that 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 more accessible and cheaper. In most macroeconomic models, austerity policies that reduce government spending lead to increased unemployment in the short term. In the longer term, reduced government spending can reduce GDP growth if, for example, cuts to education spending leave a country's workforce less able to do high-skilled jobs or if cuts to infrastructure investment impose higher costs on businesses than they saved through lower taxes [Wikipedia].
There are three primary types of austerity measures:
Generating revenue through higher taxes. This method often supports more government spending. The goal is to stimulate growth with spending and capture benefits through taxation.
The Angela Merkel model. Named after the German chancellor, this measure focuses on raising taxes while cutting nonessential government functions.
Lower taxes and lower government spending. This is the preferred method of free-market advocates
[Investopedia].
Understanding Austerity, Types of Austerity Measures & Examples. Investopedia. Retrieved from: https://www.investopedia.com/terms/a/austerity.asp
Austerity. Wikipedia. Retrieved from: https://en.wikipedia.org/wiki/Austerity