The purpose of our article on the economic consequences of revenue sharing was relatively straightforward: It was to refute, with a particular view of government, the commonly stated proposition that revenue sharing (as well as many other forms of inter-government grants) is intended to decentralize governmental powers by distributing federal government revenues to state and local governments. Further, our purpose was to argue that state and local governments saw in revenue sharing a means of cartelizing tax collections, of charging monopoly tax-prices. In this regard, our analysis extended the economic theory of regulation, developed by George Stigler and refined by others, to the state and local government 'market.' The line of analysis is fully compatible with explanations for the rate and regulations instituted by, for example, the CAB. We fully expected many of the same consequences experienced from, say, the regulation of the airline industry to appear in the government market. The main conclusions of the paper were (1) revenue sharing would move stat~ and local governments away from their competitive tax-price equilibrium (which was used in our article more as a conceptual reference point than as a description of the actual state of affairs in the real world) and would lead to greater tax collections by all levels of government and (2) would give rise to inefficiency in the allocation of resources. The comments of Professors Friedman and Kurth on our article are useful because they make quite explicit a point that was subsumed in our analysis, mainly that regulation and control of competition in the price dimension will lead to competitive pressures in areas not controlled. As in the case of regulation of the airline industry, suppressed price competition can be, eventually, expected to be reflected in non-price dimensions, like the quality and quantity of government services. These points do not disturb us for two reasons. First, again, our purpose was to argue that revenue sharing leads to inefficiency, and inefficiency that goes by the name of'under' or 'over' production is still inefficiency. Second, the Friedman-Kurth argument reinforces our position which is that state and local government officials had a private interest in the creation and extension