In order to understand the conditions under which decentralization might foster or undermine accountability and good governance, researchers have focused attention on the mechanisms through which local governments are funded. In both observational and quasi-experimental studies, intergovernmental grants appear to be associated with a range of undesirable outcomes. In a smaller group of studies, there is more tentative evidence that efforts at enhanced local revenue mobilization are associated with improvements in governance and citizen engagement. However, in much of the developing world, the conditions for robust local taxation and strong reliance on local revenues to fund local public goods are not met. Spatial income inequality and local political opposition, among other factors, have blocked the development of the local tax base. Academics, governments, and aid practitioners still have much to learn about 1) the conditions under which local taxation can be successfully expanded and 2) the best ways to improve the distribution and oversight of intergovernmental grants so as to reduce corruption and inefficiency. The challenges can be met through a collaborative research agenda that embeds learning opportunities in aid programming and government reforms from their inception.