When Budgets Tighten, Health Suffers: The Hidden Costs of Fiscal Consolidation

When governments face large deficits and rising public debt, fiscal consolidation often appears unavoidable. Expenditure cuts, tax increases, and organisational reforms are introduced to restore confidence in public finances and protect the long-term sustainability of the welfare state. From an accounting perspective, the objective is clear: bring expenditure and revenue back into balance.

Yet public budgets are not merely accounting systems. They finance hospitals, preventive services, vaccinations, social protection, and the professionals who deliver essential care. Reducing expenditure may improve fiscal indicators while quietly weakening the conditions that sustain population health.

This tension became particularly visible after the global financial crisis of 2007–2008 and the Great Recession that followed. Across Europe, deteriorating public finances prompted many governments to adopt consolidation programmes, frequently centred on spending cuts. Health systems were not immune. Hospital capacity was reduced, staff turnover was restricted, pharmaceutical expenditure was constrained, and access to some services became more difficult.

Did these measures restore fiscal discipline without harming health? Or did part of the adjustment reappear elsewhere, in the form of additional deaths, poorer health, and shorter lives?

Two studies, conducted at Sapienza University of Rome in 2023 and 2026, offer evidence from Italy and from the 27 European Union countries and suggest that the health consequences of fiscal consolidation are real, substantial, and often slow to emerge.

Why Austerity May Affect Health

Fiscal consolidation can influence health through two main channels.

The first is the healthcare capacity channel. Spending restrictions may reduce staff, hospital beds, diagnostic activity, preventive care, or the range of publicly funded services. Even where a universal health system formally continues to guarantee essential care, its capacity to deliver that care promptly and effectively may deteriorate.

The effects are not necessarily immediate. A reduction in screening today may translate into a later cancer diagnosis several years from now. A shortage of personnel may initially increase workloads and waiting times before eventually affecting the quality of treatment. Lower vaccination coverage may remain unnoticed until outbreaks of preventable diseases occur.

The second is the social risk channel. Fiscal consolidation frequently takes place during periods of unemployment, falling income, and economic insecurity. Cuts to social programmes may reinforce these pressures. Job loss and material deprivation affect nutrition, housing conditions, mental health, and the ability to seek care. Prolonged insecurity can also encourage harmful behaviours and weaken adherence to treatment.

These two mechanisms may interact. A person facing unemployment or poverty becomes more vulnerable precisely when the healthcare and social protection systems have less capacity to respond. Fiscal consolidation can therefore increase the need for public services while simultaneously restricting their supply.

This helps explain why the health effects of austerity may be cumulative. The first year of a programme may reveal little. Over time, however, repeated reductions in prevention, staffing, investment, and social protection can progressively erode population health.

Italy’s Regional Experiment

Italy offers an especially informative setting in which to examine this question. Its Servizio Sanitario Nazionale (the Italian National Health Service) is based on universal coverage and financed primarily through taxation, but healthcare is organised and delivered at regional level. The result is a nationally defined system operating through twenty-one regional administrations with markedly different managerial capacities and financial conditions.

Following greater decentralisation, some regions accumulated substantial healthcare deficits. Beginning in 2007, regions exceeding specified deficit thresholds were required to adopt financial recovery plans known as Piani di Rientro. These programmes were designed to identify inefficiencies, reduce expenditure, and restore balanced regional health budgets.

The measures included restrictions on staff turnover, reductions in hospital beds and hospitalisations, and controls on pharmaceutical and other healthcare expenditure. The plans were monitored by the central government and could remain in force beyond their initial three-year duration if financial objectives were not achieved.

In principle, this arrangement sought to reconcile fiscal discipline with the continued provision of the Livelli Essenziali di Assistenza (Essential Levels of Care) guaranteed to all citizens. In practice, however, controlling costs without affecting the availability or quality of services proved difficult.

Evidence covering the Italian regions between 1999 and 2015 indicates that the recovery plans are associated with a deterioration across several dimensions of population health. Regions subject to the programmes experienced a 3.9 percent increase in the general mortality rate, corresponding to approximately 3.9 additional deaths per 10,000 inhabitants at the sample mean. The suicide rate increases by 30.7 percent, equivalent to around 0.23 additional deaths per 10,000 inhabitants, while potential years of life lost rise by 8.7 percent, corresponding to approximately 23 years. Disease-specific estimates indicate a 7.6 percent increase in cancer mortality—about 2.2 additional deaths per 10,000 inhabitants—and a 13.1 percent increase in mortality from heart disease, corresponding to approximately 1.7 additional deaths per 10,000 inhabitants. Among people aged 65 and over, mortality from heart disease increases by 7.6 percent, or about 4.4 additional deaths per 10,000 inhabitants. These are conditions for which timely diagnosis, continuity of care, and access to specialised treatment are particularly important. When personnel and hospital resources are constrained, patients with costly, chronic, or complex diseases may face the greatest risks.

 

Beyond Mortality

The consequences were not confined to deaths. Fiscal recovery plans were also associated with changes in infectious diseases and mental health.

The incidence of measles and chickenpox rose sharply in the affected regions: measles incidence becomes approximately 6.3 times as high, increasing from a sample mean of 6.3 to about 39.6 cases per 100,000 inhabitants, while chickenpox incidence becomes approximately 3.9 times as high, rising from 146.3 to about 563.7 cases per 100,000 inhabitants. Both diseases can be contained through effective immunisation, but vaccination programmes require organisational capacity, primary care personnel, information campaigns, and reliable access to services. Formal inclusion in the Essential Levels of Care does not automatically guarantee effective delivery if the resources needed to provide those services are weakened. By contrast, AIDS/HIV incidence falls by 42.4 percent—approximately 0.8 fewer cases per 100,000 inhabitants—while the HIV discharge rate declines by 50.1 percent. These reductions should be interpreted cautiously, as they may reflect changes in diagnosis and healthcare utilisation rather than an unambiguous improvement in health. Finally, the discharge rate for psychological diseases increases by 12.6 percent, corresponding to approximately 6.6 additional discharges relative to its sample mean. This finding points towards a broader form of social distress. Economic insecurity, unemployment, and deteriorating living conditions may increase the demand for mental healthcare just as budgetary constraints limit the system’s capacity to provide early and community-based support.

Some outcomes moved in the opposite direction. Recorded HIV incidence and hospital discharges declined. Such reductions need to be interpreted carefully. They may reflect changes in incidence, but they may also be influenced by reduced use of services, diagnostic activity, or hospital treatment. Lower utilisation does not necessarily mean a healthier population, particularly when other indicators show rising physical and psychological vulnerability.

The Italian experience therefore illustrates an important principle: the success of a fiscal recovery plan cannot be assessed solely through expenditure or deficit targets. A programme may improve the financial balance of a health system while transferring costs to patients, families, and future public budgets.

From Italy to Europe

The Italian case raises a broader question. Were these effects specific to the structure of Italy’s regional health system, or did similar patterns emerge across Europe?

Evidence for the 27 European Union countries over the period 1995–2015 suggests that the problem was considerably wider. European countries adopted fiscal consolidation programmes at different times, particularly after the global financial crisis. This variation makes it possible to compare changes in health outcomes between countries that introduced consolidation and those that had not yet done so.

The analysis focuses on four complementary indicators: all-cause mortality, infant mortality, life expectancy at birth, and potential years of life lost. Together, they capture not only average population health but also vulnerability at the beginning of life and the incidence of premature death.

The results point consistently in the same direction. Following the introduction of fiscal consolidation, all-cause mortality increased by approximately 2 percent—equivalent to about 21 additional deaths per 100,000 inhabitants at the sample mean. Infant mortality rose by 0.642 deaths per 1,000 live births, equivalent to a substantial rise of approximately 13 percent relative to its average level. Fiscal consolidation is also associated with a 0.303-year reduction in life expectancy at birth—around 3.6 months, or 0.4 percent of the sample mean—and with an increase of 431 potential years of life lost, corresponding to approximately 6 percent of the average level. Taken together, these findings indicate that fiscal consolidation affects not only overall mortality and longevity but also particularly sensitive dimensions of population health, such as survival during the first year of life and premature mortality.

These outcomes are difficult to dismiss as marginal fluctuations. Infant mortality is one of the most sensitive indicators of social and healthcare conditions. It depends on maternal health, prenatal monitoring, neonatal care, living standards, and timely access to medical services. Potential years of life lost similarly capture deaths occurring well before the age at which they would normally be expected. The deterioration of both indicators suggests that fiscal consolidation disproportionately affects people at particularly vulnerable stages of life.

Table 1. A Comparison of the Insights from Italy and the EU-27

Dimension	Italian study (Cirulli and Marini, 2023)	EU-27 study (Cirulli and Marini, 2026)	Comparison
Policy examined	Regional financial recovery plans directly targeting healthcare expenditure and capacity	Broader national fiscal consolidation programmes	The policies differ in scope and intensity
Main health outcomes
General mortality	+4%, corresponding to approximately 39 additional deaths per 100,000 inhabitants	+2%, corresponding to approximately 21 additional deaths per 100,000 inhabitants	The estimated effect is larger in Italy
Potential years of life lost	+9%	+6%	The estimated effect is larger in Italy
Infant mortality	Not examined	+13%, corresponding to approximately 642 infant deaths per 1,000,000 live births	Evidence available only for the EU-27
Life expectancy at birth	Not examined	−0,4%, equivalent to a reduction of 3.6 months	Evidence available only for the EU-27
Other health outcomes
Suicides, cancer mortality, heart-disease mortality, infectious diseases, psychological distress, and healthcare utilisation	Adverse effects	Not examined	Evidence available only for Italy
Main conclusion	Particularly pronounced adverse effects on mortality, premature death, and several dimensions of physical and psychological health	Adverse effects on mortality, infant survival, longevity, and premature death	Both studies indicate significant and wide-ranging health costs

Methodological note. Percentages for the Italian study (Cirulli and Marini, 2023) have been recalculated from the underlying regression coefficients rather than taken from the rounded figures stated in the paper's text. The original study log-transforms its outcome variables, so converting a coefficient into a percentage change requires exponentiating it, not just reading the coefficient itself as a percentage. For small effects this makes little difference, but for larger ones — such as suicides, measles, chickenpox, and AIDS/HIV incidence — the two methods can diverge substantially. The figures reported here use the standard conversion for this type of model, so they may differ somewhat from the percentages quoted in the original paper's discussion. Figures from Cirulli and Marini (2026) are unaffected, as that study's outcomes are not log-transformed. The comparison should be interpreted with caution, as the two studies examine different types of fiscal consolidation policies, use different geographical units of analysis—Italian regions and EU countries—and consider only partially overlapping health indicators. The reported differences should therefore not be regarded as a formal statistical test of whether fiscal consolidation had stronger health effects in Italy than in the EU-27.

Health Effects Take Time

One of the clearest findings from the European evidence is that the health consequences of consolidation tend to develop gradually. Mortality and premature mortality do not necessarily jump at the moment a programme is announced. Instead, they often worsen over the following years.

This delayed pattern is economically and medically plausible. Healthcare systems initially absorb budget cuts through temporary adjustments: vacancies remain unfilled, existing staff work longer hours, investments are postponed, and waiting lists increase. Families may compensate for reduced public provision by paying privately or providing informal care.

But these buffers have limits. Prolonged staff shortages affect morale and quality. Delayed investment leaves equipment and infrastructure outdated. Reduced prevention produces diagnoses at later stages. Household resources become depleted. What looks sustainable in the first year may become damaging after repeated rounds of adjustment.

The effects also appear stronger in countries that adopted more stringent programmes under intense market pressure or international supervision than in countries implementing less restrictive, government-led strategies. This indicates that it is not simply the existence of fiscal consolidation that matters. Its intensity, composition, and speed are crucial.

A gradual and carefully designed programme that protects effective healthcare and social spending is not equivalent to an abrupt, expenditure-driven adjustment imposed during a severe recession.

Fiscal Sustainability and Health Are Not Opposing Goals

The evidence does not imply that deficits can be ignored or that all healthcare spending is automatically beneficial. Inefficiency, duplication, and poor resource allocation can weaken both fiscal sustainability and quality of care. Reforming inefficient services may be necessary.

The more useful lesson is that the composition of fiscal consolidation matters at least as much as its headline size. Across-the-board cuts can be particularly harmful because they fail to distinguish between ineffective expenditure and high-value services.

Preventive interventions, primary care, vaccination, maternal and child healthcare, mental health support, and the timely treatment of cardiovascular disease and cancer may generate benefits far exceeding their immediate budgetary cost. Cutting them can create only an illusion of savings, because later diagnoses, emergency admissions, disability, and premature deaths impose substantial economic and social costs.

Policymakers should therefore evaluate consolidation programmes through a broader framework. Fiscal indicators must be considered alongside waiting times, access to care, staffing, vaccination coverage, avoidable mortality, infant mortality, mental health, and socioeconomic inequality.

Health impact assessments could be incorporated into the design of consolidation packages, with explicit safeguards for services serving vulnerable populations. Labour-market policies should protect people experiencing unemployment, while social programmes should prevent temporary economic shocks from becoming lasting health disadvantages.

A Broader Definition of Sound Public Finance

Fiscal sustainability is intended to protect future generations from excessive debt and unstable public finances. But a strategy that balances budgets by reducing life expectancy, increasing infant mortality, or allowing preventable deaths cannot be considered fully sustainable.

Population health is itself a form of capital. Healthier societies are more productive, more resilient, and less dependent on expensive emergency and long-term care. Protecting health during periods of fiscal adjustment is therefore not merely a social objective; it is also part of sound economic policy.

The central question is not whether governments should ever consolidate their finances. It is how they can do so without dismantling the systems that protect life and well-being.

The European and Italian evidence provides a clear warning. The damage caused by austerity may remain partly invisible when programmes are first introduced. It appears gradually—in missed prevention, delayed care, psychological distress, premature mortality, and months of life expectancy lost.

Budgetary savings are immediately recorded. Their human costs often arrive later. A responsible fiscal policy must account for both.

References

• Cirulli V, Marini G. Are austerity measures really distressing? Evidence from Italy, Economics & Human Biology, Volume 49, 2023, 101217, ISSN 1570-677X, DOI: 10.1016/j.ehb.2022.101217

• Cirulli V, Marini G. Fiscal consolidation and impaired health? Evidence from 27 European Union countries, Economics & Human Biology, 2026, DOI: 10.1016/j.ehb.2026.101634