Economic growth is essential for sustainable development and improving social outcomes.4 Growth usually—but not always—benefits the poor; in about 90 percent of the cases in which countries have experienced per capita GDP growth of at least 2 percent per year over a five-year period, the poor also experienced rising real incomes. While, in general, there is no pro-rich bias in growth,5 appropriate development of the poor’s income-earning potential can help ensure that they also share in the fruits of an expanding economy (see the section on “Fiscal Policy, Human Development, and the MDGs”). Not surprisingly, there is also a strong link between economic growth and improvements in non-income dimensions of poverty. For example, a 10 percent increase in GDP per capita typically results in a 3–5 percent decrease in infant and child mortality rates.6 Similarly, disparities between male and female literacy rates fall markedly as GDP increases.7 In this light, fiscal policy can play a pivotal role in achieving the MDGs by fostering robust economic growth.
Economic growth can support environmental sustainability and vice versa. Growth can help the environment by increasing the resources available for environmental improvement. For example, access to safe water and sanitation has been steadily increasing with economic growth in East Asia.8 However, the experiences of developed countries show that growth is no panacea. Good policies and institutions are also important, not least in relation to fiscal policy; recent studies show that they can significantly reduce environmental degradation in low-income countries and speed up improvements in high-income countries.9 Policy must also recognize that important links run in the other direction as well; environmental quality and sustainable resource use can affect economic growth.10 The morbidity and mortality costs of air pollution, for instance, are substantial in many parts of the developing world, with adverse consequences for economic growth.
Fiscal Dimensions of Sustainable Development Prepared for World Summit on Sustainable Development Johannesburg, August 26–September 4, 2002
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The IMF is an international organization
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