The present paper focuses on the role of domestic resource mobilization for financing poverty reduction strategies. Policy makers should be aware of important macroeconomic trade-offs associated with MDG strategies financed from tax increases or domestic borrowing. The tradeoffs are largely intertemporal: can poor and middle-income countries absorb the initial financing costs in order to achieve expected gains in productivity and human development over time? This calls for a dynamic economy-wide framework to identify the importance of such trade-offs. The paper presents such a framework and illustrates its usefulness in applications for Costa Rica and Ecuador.