Austerity in Crisis?: A Narrative Review of Its Economic, Social, and Political Effects in Times of Crisis

TL;DR

The paper addresses whether austerity during economic crises yields macroeconomic gains or costs. It adopts a qualitative, narrative synthesis guided by PRISMA to integrate 69 studies across macroeconomic, social, and political dimensions from 2010–2024. The findings converge on the view that austerity in recessions is largely contractionary, with large fiscal multipliers, persistent hysteresis effects, and substantial social and governance costs; context and policy design modulate these outcomes, though universal positive effects are rare. The work highlights gaps in developing-country analyses, long-horizon consequences, and responses to new crises like COVID-19, offering guidance toward more contextual, equitable, and cycle-aware fiscal policies for future downturns.

Abstract

The 2008 global financial crisis marked the beginning of a decade dominated by fiscal austerity policies in much of the developed world. This paper presents a qualitative narrative review of an extensive collection of academic literature to synthesize evidence on the multifaceted effects of austerity. Following a thematic approach inspired by PRISMA guidelines, the economic, social, and political consequences of these measures are examined. The analysis reveals a majority consensus regarding the recessive effects of austerity, especially when implemented during economic crises, with negative fiscal multipliers that often exacerbate GDP contraction. Socially, austerity is associated with rising inequality, negative impacts on public health, disproportionate gender consequences, and a weakening of social safety nets. Politically, evidence links austerity to the erosion of trust in institutions, a rise in populism, and electoral instability. Despite the political narrative presenting austerity as an inevitable necessity for fiscal sustainability, academic literature underscores its high costs and questionable efficacy, advocating for more contextualized and equitable economic policy approaches.