The study deals with determinants of local policy outputs in Israel's centrist system. It compares the effects on local expenditure policy of political and socio-economic variables, as well as the roles of tax revenue and central aid. Tax is analysed as an intervening variable between socio-economic factors and local policy, rather than as a policy output (the traditional conception); our findings indicate that tax is indeed an intervening variable. Government aid is also seen as an intervening factor which affects varitions in local policy outputs. Data indicate a two-stage process in which socio-economic factors affect the tax level and government aid-which, in turn, affect policy outputs. The casual ordering of these findings is estimated through path analysis.