# Austerity

*Macro & Economy — Finicade finance glossary*

Austerity is cutting government spending or raising taxes to shrink a deficit. Whether it works depends almost entirely on the multiplier: if it's small, debt falls without much damage to output, and if it's large, the contraction shrinks GDP faster than debt, so the debt ratio worsens. The post-2010 European experience became the central case study for the second outcome.

**Also known as:** fiscal consolidation, spending cuts

**Related terms:** [Budget Deficit](https://finicade.com/glossary/budget-deficit), [Government Debt](https://finicade.com/glossary/government-debt), [Fiscal Multiplier](https://finicade.com/glossary/fiscal-multiplier), [Recession](https://finicade.com/glossary/recession), [Fiscal Policy](https://finicade.com/glossary/fiscal-policy)

Source: https://finicade.com/glossary/austerity