The literature of fiscal Decentralization emphasizes how the design of intergovernmental transfer systems has a significant implication on the behavior of local governments. The empirical results about the relationship between central transfers and the incentives they create for revenue mobilization are differ from country to country and depend on the structure and type of transfer system in each country. Given the lack of financial data at the local level, this type of study rarely involves developing countries. Using a unique and rich financial, socio-economic, demographic and political data on Ugandan and Egyptian local governments, this paper contributes to the new generation of fiscal federalism literature by assessing the fiscal incentive effects of two types of transfers: general purpose transfers (unconditional) defined by a formula and specific purpose transfers (conditional) allocated on an ad-hoc basis. The findings support the existence of a positive incentive effect of unconditional and conditional transfers in Uganda, but a negative incentive effect in Egypt, suggesting that the transfer system in Egypt suffers from a defect that does not make it able to create incentives for local governments to mobilize their revenues.