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Welfare reform gave the U.S. states the opportunity to engage in second-order devolution (SOD), which allows local governments to exercise more discretion in the implementation of the Temporary Assistance for Needy Families (TANF) program. Proponents of welfare decentralization insist that local governments better understand the needs of the poor and are therefore able to implement TANF more effectively. Nevertheless, opponents argue that decentralization could lead to a "race to the bottom" and, thus, SOD might lead to more restrictive TANF implementation. We investigate these competing claims by examining how differences in decentralization affect (1) TANF caseload decline, (2) the use of sanctions, and (3) several work-related outcomes among recipients. Based on a series of state-level analyses, we find that SOD states experienced a greater degree of caseload decline than non-SOD states. In addition, SOD states were more likely to use punitive policy tools, such as TANF sanctions. However, we also find that SOD states display marginally better TANF performance, as reflected in higher rates of employment exits and earnings gains among TANF recipients. Thus, we find support for both sides of the decentralization debate. [PUBLICATION ABSTRACT]