This paper documents empirical evidence on price-effect caused by lumpsumgrants for local governments in Brazil between 2006 to 2010. Dahlby(2011) demonstrates theoretically that lump-sum grants can reduce thecost of public goods provision (price-effect), in addition to the traditionalincome effect. Our contributions are threefold. First we estimated semielasticityof the effects of tax rate changes on tax base (−0.016). Second, wecalculate the MCF of the local tax imposed on the supply of services (ISS)for Brazilian municipalities (average of 0.04). Finally, we estimate the priceeffectestimation for ISS tax. Our results suggests that for the entire sample,that an increase in R$ 1.00 in per capita unconditional transfers reducesthe local price effect (MCF) around 0.07%, but this result is not consistentlyestimated across all subsamples.This paper documents empirical evidence on price-effect caused by unconditional transfers for local governments in Brazil. Dahlby (2011) demonstrates theoretically that lump-sum transfers can reduce the cost of public goods provision (price-effect), in addition to the traditional income effect. Our contributions are threefold. First, we estimate the effects off tax rate changes on tax base. More important, we calculate the marginal cost of public funding (MCF) regarding the local tax imposed on the supply of services (ISS). Third, we control for potential simultaneity between unconditional transfers and local tax revenue in a two-stage least square approach using instrumental variables. Our price-effect estimation for tertiary sector tax suggests that a 10% increase in the amount of unconditional transfers resources reduces the local price effect (MCF) around 0.01%.