While decentralisation, properly understood, implies that sub‐national government involves devolution of authority over revenues, recent experience from Peru suggests that the canon system tends to create perverse incentives in encouraging open and democratic government at the local level. This is particularly the case in regions such as Cusco, which benefit disproportionately from this system. Examination of experiences in four provinces of Cusco shows how – in the absence of a robust civil society – excessive funding tends to encourage clientelism and corruption rather than accountable and transparent administration.