Social Sciences

What Does Austerity Mean in Economics and Politics

Rebecca Doughty
By Rebecca Doughty . Updated: June 3, 2018
What Does Austerity Mean in Economics and Politics

If you've ever listened to a political debate or heard politicians or bankers talking on the news, you've most likely heard them discussing austerity, particularly in relation to the economy. Whilst we might hear this term frequently when it comes to politics, many of us aren't actually sure of its meaning. So in this oneHOWTO article, we're going to explain what austerity means in economics and politics.

Steps to follow:


In Economic Analysis, the term austerity is frequently used within the government during times of recession or slow economic growth and refers to a reduction in the amount of deficit a certain government has, no matter what the economic cycle is, in order to lower the debt they have contracted in the country's arches.


Spending cuts are likely to occur during times of recession or weak economic growth. In this context, austerity refers to the measures taken by the government to reduce their budget deficits. There are a number of reductions, cuts and measures held in certain policies which are most commonly affected during times of austerity:

  • Reduction or limit of unemployment benefits
  • Increasing VAT
  • Public funding cuts
  • Reduce wages for civil servants
  • Increase in taxes on high income
  • Reduction of minimum wage
  • Privatization of certain public industries such as transport or telecommunications
  • Increasing working hours
  • Fighting tax evasion
What Does Austerity Mean in Economics and Politics - Step 2

Austerity therefore is often unpopular with the citizens of a country due to the fact that factors such as raised taxes or public funding cuts often affect their lifestyle or cost of living in a negative way. For example spending cuts in public services often lead to job losses which can then lead to lack of GP's or other important amenities.

This is why there is certain controversy on whether austerity measures actually do work, as the reduction in income and raise of taxes can make microeconomics lose importance, thus also affecting business, especially among lower and middle classes.

This does not only affect microeconomics, but macroeconomics can also be affected as the country's stock index may go down due to the market's distrust and create a stock market crash like that lived in 2008. This is why it's important to know how to manage savings during to a stock market crash.


The term austerity is so commonly used within economics and politics, because it's definition as a word alone refers to a lifestyle living without luxuries, goods and with limited money. People living during times of war or political turmoil are often faced with austerity.

If you want to read similar articles to What Does Austerity Mean in Economics and Politics, we recommend you visit our Learning category.

Write a comment
What did you think of this article?
1 of 2
What Does Austerity Mean in Economics and Politics