This paper analyzes the impact of both national and local welfare benefits on low-income
households. Considering a federation with two levels of government, we develop a theoretical
model wherein low-income households have the potential to access two distinct
forms of social assistance: national and local. Our analysis reveals a negative relationship
between the two levels of assistance, suggesting that the two public subsidies function as
strategic substitutes. A federal reform designed to enhance work incentives by reducing
marginal tax rates on the lowest incomes may encourage changes in the opposite direction
in the conditions under which local aid is granted, leading to limiting the effects of the national
reform. We empirically confirm this mechanism by examining the implementation
of the Active Solidarity Allowance (RSA, Revenu de Solidarit´e Active) reform in France
in 2009. Leveraging extensively detailed data on local welfare rates, we show that this
reform coincided with divergent alterations in local welfare rates between 2010 and 2020.
Our findings highlight the importance of understanding the interplay between national
and local welfare programs for crafting effective social policy.