What does austeriy mean?
According to Sophie Elmhirst austerity is a policy of deficit-cutting by lowering spending via a reduction in the amount of benefits and public services provided. This measure is often used by governments to reduce their deficit spending and is often coupled with increases in tax[i].
According to Sophie Elmhirst austerity is a policy of deficit-cutting by lowering spending via a reduction in the amount of benefits and public services provided. This measure is often used by governments to reduce their deficit spending and is often coupled with increases in tax[i].
The opinions about austerity are controversial, indeed more economists condemn this decision because in a period of recession and high unemployment these restrictive measures are counterproductive and, what is worse, the austerity policies are applied indiscriminately in different situations-states, each of which represents a sui generis case, to be considered separately.
The economist Paul Krugman, Nobel Prize in 2008 and reporter for the New York Times, believes that public spending cuts inevitably lead to a reduction in the economic growth of a state. According to him reducing public spending to reduce the deficit, in a crisis time, is not the best way, not only because aggravates the crisis, but does nothing to reduce the deficit. At the same time Krugman underlines that a weak economy reduces tax revenues and If everyone is trying to reduce their spending the economy can be trapped in what economists call the paradox of thrift, worsening the recession and the GDP fall[ii].
On the other hand we have the supporters of austerity policy who say that this is the way to realize a positive future expectations based on increased private consumption and a global economic recovery. These optimistic expectations have been denied by the International Monetary Fund, in fact in October 2012 announced that the implementation of austerity programs have been consistently overoptimistic, suggesting that tax raise and spending cuts have been doing more damage than expected[iii].
The European situation shows an increase of protest movements and other initiatives that ask a radical change of policies and the current orientation of many European governments in the economic and social issues. We are also seeing an European mobilization: workers and students against austerity policies as pensions cuts, public services reduction and education spending decrease, mobilization that give a continental dimension to the all forms of struggle that have taken place in Greece, Spain and Portugal.
In conclusion we can report what John Maynard Keynes said in 1937: “ The boom, not the slumps, is the right time for austerity at the Treasury”[iv].
[i] Elmhirst, Sophie (24 September 2010). "Word Games: Austerity". New Statesman. Archived from the original on 29 September 2010. Retrieved 29 September 2010.
[iii] Brad Plumer (October 12, 2012) "IMF: Austerity is much worse for the economy than we thought" Washington Post
Post 2_Austerity measures
This is the synthesis of a work made by European Commission about social effects of austerity measures taken in Europe after that the economic crisis has widely spread over the most of the countries.
The economic crisis and the austerity measures to counter it are widely expected to cause poverty and inequality to rise sharply. In this work it is taken into account the situation of four European welfare states which are among the worst hit by the crisis. However, the degree of fiscal consolidation they have set out to achieve varies, and so does the policy mix chosen to achieve it. This analysis addresses the question of how socially fair that policy mix is.
Which measures count as austerity measures?
In some countries explicit packages of reforms have been labeled as austerity measures. While mostly involving tax increases and cuts in social benefits and public sector pay, they may also include increases in some benefits or reductions in taxes for certain groups to be protected. In any case, the package as a whole can be easily identified. In other countries it is not so clear how policy would have evolved in the absence of the budgetary crisis.
The counterfactual.
The way in which the base scenario is simulated (i.e.”what would have happened in the absence of the crisis”) is critical for the evaluation of the effects of the austerity measures. It is also noticeable that the time periods not only span different lengths of time but also refer to different periods in times across countries, depending on the period in which austerity measures have been introduced. In each case the pre-tax and benefit income level and distribution is drawn initially from data from the recent, pre-crisis past.
Which measures can be simulated?
In most countries austerity measures take the form of some combination of: (i) reductions in cash benefits (and public pensions); (ii) increases in direct taxes and contributions; (iii) increases in indirect taxes; (iv) reductions in public services that have an indirect impacton the welfare of households using them; (v) reductions in public expenditure that cannot be allocated to households (e.g. pure public goods like defense spending) and increases in taxes that are not straightforward to allocate to households; (vi) cuts in public sector pay (vii) cuts in public sector employment.
The eventual effect on the public budget will be the net effect of these changes.
These simulations are effectively measuring the effects of the austerity measures on populations with pre-crisis characteristics. This work do not attempt to model here behavioral or macro-economic effects.
Specifically, wider aspects of the crisis beyond the austerity measures are ignored, even though the latter may arguably aggravate the former, at least to some extend.
The European tax-benefit model EUROMOD
EUROMOD is a multi-country, Europe-wide tax-benefit micro simulation model that provides measures of direct taxes, social contributions and cash benefits as well as market incomes in a comparable way across countries.
For the full work of European Commission visit: Http://ec.europa.eu/social/BlobServlet?docId=6726&langId=en
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