This policy brief cautions on current efforts towards decentralization via a federal shift, by taking stock of the ambivalent relationship between fiscal transfers and their welfare implications. Whether under the existing decentralization scheme or in the proposed fiscal framework under federalism, this brief argues that fiscal governance in the Philippines is generally characterized by extreme overdependence on central subsidy. The policy brief proceeds by first discussing the debate on the relationship between fiscal transfers and local development, and shows how literature has been ambivalent. Afterwards, it looks at the local fiscal framework in the Philippines under the Local Government Code of 1991 and in the setup laid down in the proposed federalist constitution. Using fiscal and electoral data, the brief then shows how the internal revenue allotment (IRA) may be dissuading local revenue generation, inadvertently making local governments more dependent on central government. The brief concludes with some policy recommendations on how local fiscal governance in the Philippines can be redesigned to make fiscal independence feasible.