Austerity is a term describing the economic policies implemented by a government to control public debt. In theory, austerity is meant to reduce spending and increase revenue to bring government budgets closer to balance, usually during times of financial instability. The three primary types of austerity measures are revenue generation, higher taxes, and lower taxes with fewer government services.

Revenue generation austerity is put in place to make up for budget deficits by increasing taxes and cutting nonessential services. These measures are intended to swiftly boost revenues, allowing the government to continue serving its citizens. For example, the COVID-19 pandemic spurred many governments to increase income taxes to cover the financial losses resulting from shutdowns.

An alternative tactic is cutting taxes while cutting nonessential parts of the budget. This approach is more fiscally conservative, as the aim is to increase tax competitiveness and reduce government spending. This has the potential to increase economic growth and reduce unemployment, but cuts may also hurt those relying on services, such as welfare or infrastructure development.

A third type of austerity is to reduce taxes while cutting government spending. This method attempts to stimulate the private sector, increase economic growth, and reduce unemployment. Opponents argue it can be difficult to balance sufficient revenue with appropriate services. Government services are essential for citizens’ well-being, so cutting certain services could have significant long-term consequences.

Naturally, austerity is a contentious issue, and national outcomes vary depending on the situation. The United States, Spain, and Greece all implemented different austerity measures during times of financial instability, but the resulting effects varied. In the U.S., austerity measures only worsened the situation, delaying the economic recovery. In Spain, the effects were also not positive, but the state managed to avoid a budget collapse. Contrastingly, Greece saw some benefit from austerity measures, as the government was able to reach ambitious budget targets.

Austerity is a controversial tool, and its efficacy depends on the type of measures implemented, the state of the economy, the willingness of citizens to implement change, and the stability of the government. In general, governments use austerity as a last resort, as it often leads to decreased incomes, higher taxes, and fewer services. While there are benefits to implementing austerity, such as increased government control over spending and revenues, the long-term costs can be more damaging than doing nothing at all.