Abstract

This paper depicts three mechanisms through which fiscal policy affects economic growth in the Dominican Republic. The first mechanism rests on the evidence that increasing public expenditures on education leads to the reduction of adolescent fertility and the percentage of young females who neither study or work, which gives rise to increasing the ratio of female to male employees and thus increasing domestic savings and economic growth.

The second mechanism consists of increasing social expenditures, which results in decreasing the underground economy and, thus, results in increased productivity, economic growth, and reduced violence.

The third mechanism is based on the evidence that increasing education expenditures leads to the reduction of emigration and, thus, to the reduction of remittances, which in turn increases economic growth.

The operation of these mechanisms is sustained by Figures that show that the postulated relationships exist in the Dominican Republic.

The results imply first, that fiscal policy has important effects that have often been overlooked, such as the reductions in school desertion, the percentages of female and male youth that neither work nor study, and the decrease in informality in the Dominican Republic. And second, a valid development strategy resides in increasing tax revenues to support the expansion of social services.

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