Fiscal Dimensions of Sustainable Development

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Back Matter

International Monetary Fund
Published Date:
August 2002
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    The MDGs grew out of the agreements and resolutions of world conferences organized by the United Nations in the past decade. The goals have been commonly accepted as a framework for measuring development progress and include goals relating to eradicating extreme poverty and hunger; achieving universal primary education; promoting gender equality and women’s empowerment; reducing child mortality; improving maternal health; combating HIV/AIDS, malaria, and other diseases; ensuring environmental sustainability; and developing a global partnership for development (see

    The share of the population with access to safe water rose from 71 percent in 1982 to 89 percent in 1995 in Malaysia, from 66 percent to 89 percent in Thailand, from 39 percent to 65 percent in Indonesia, and from 65 percent to 83 percent in the Philippines. Similarly, sanitation service availability rose from 46 percent to 96 percent in Thailand, from 33 percent to 55 percent in Indonesia, and from 57 percent to 77 percent in the Philippines (World Bank, 1999).

    High inflation is correlated with both less rapid growth of average income and less equality. see Romer and Romer (1998) and Guitian (1998).

    Containing the size of government to an appropriate level may also promote private sector development. For a discussion of government size, see Tanzi and Schuknecht (2000).

    See Gupta and others (2002c). The paper defines low budget deficits as cash deficits of less than 2 percent of GDP (after grants) and low inflation as an annual inflation rate below 10 percent.

    On the role of incentive constraints in tax design, see Boadway and Keen (2000).

    Although the empirical literature on the effect of taxes on growth is mixed, some studies find that distortionary tax systems impede growth. For example, see Kneller, Bleaney, and Gemmell (1999).

    Tanzi and Zee (2000) provide an overview of tax policy issues for developing countries.

    See Ebrill and others (2001) for a description of VAT design issues and for an assessment of experience with the VAT more generally.

    Moreover, if left purely to the private sector, investment in public infrastructure and human capital may be suboptimal because of low profitability. For an overview of the literature on investment and economic growth, see Barro and Sala-i-Martin (1995).

    See Easterly and Rebelo (1993). These and other estimated effects on growth, however, should be viewed with some caution, since it can be difficult to identify precise causal relationships in the growth literature (Temple, 1999). Gupta and others (2002a), for example, find smaller, although still significant, effects.

    For example, some evidence links part of the postwar takeoff of growth in Southern Europe to the control of malaria. see Gallup and Sachs (2001).

    For an examination of petroleum subsidies in oil-producing countries, see Gupta and others (2002b).

    Also, in some countries, leases on forest concessions tend to be for periods of 15 years. However, at least 30 years are required for forests to regenerate—concession periods shorter than this do not give concessionaires an incentive to ensure the regeneration of logged forests.

    Forests may have several external benefits (prevention of soil erosion and flooding, absorption of carbon dioxide) and provide other ecoservices (such as ecotourism, nontimber products, and bioprospecting).

    For a survey of 10 country studies, See Mehrotra (1998).

    On the high productivity of selected nonwage inputs in education, see Glewwe (2002).

    Public spending is said to be well targeted if the share of benefits that accrues to the poorest 20 percent of the population is larger than that accruing to the richest 20 percent.

    Education and health figures based on national authorities’ data and IMF staff estimates.

    In response to this finding, the government took strong action: by 1999, schools were receiving 95 percent of the intended funds (Reinikka-Soininen and Svensson, 2001). For more on governance issues, see the section on “Governance and Sustainable Development.”

    For an examination of measures to improve the efficiency of education and health spending under programs supported by the PRGF’s predecessor—the Enhanced Structural Adjustment Facility (ESAF)—see Abed and others (1998).

    See Gupta and others (1999). For a review of issues in the design of social safety nets, See Chu and Gupta (1998).

    Governance covers a wide set of issues. This paper focuses on only those most germane to fiscal policy. For a further discussion of fiscal policy and governance, see Abed and Gupta (2002); for the impact of corruption on output growth, See Shleifer and Vishny (1993); and for a more general discussion on corruption, See Bardhan (1997).

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