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Definition: Austerity

In economics, austerity measures are the actions taken by government to reduce its fiscal deficit. These measures are combination of reducing expenses and increases taxes.

Sometimes, Government is pursued to take austerity measures if country defaults on its loan payments or debt rises above accepted levels. Sometimes, government voluntary takes austerity measures to bring its expenditure in line with revenues.

Few of the European countries such as Greece, Italy and Spain introduced austerity measures after their debt to GDP ratio rose significantly.

Austerity measures can lead to economic, socio-political effects.  It leads to lower economic output and consumption. However, some argue that the relation between austerity measures and economic growth is not so straight forward. It depends on many other factors.  Government reduces development and social spending which might result in unrest among citizens. If government decides to raise taxes, it leads to decrease in private consumption and savings.

Hence, this concludes the definition of Austerity along with its overview.

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