Local Space does not work with Transformations Modifier I'm trying to rig an object's wheel in a way that when I translate a bone of it in positive Z LOCAL axis, that wheel object to rotate accordingly on the positive X LOCAL axis. 

The problem is that when I translate the bone in local, the wheel is rotating in WORLD Space and NOT LOCAL as I set it up. 



So the modifiers look like this: 


Extrapolate checked
Source: Location - Z: min. 0, max. 2
Source to Destination: Z -> X 
Destination: Rotation - X: min. 0, max. 90 degrees 
SPACE: Local Space -> LOCAL SPACE (this one does NOT work, it acts like it is World Space!) 


Why? How can I make it act as I set it up?
(Vocabulary correction: it's a constraint, not a modifier).

Your constraint setup looks fine, it should work as you want.
I recommend you check again the local axes. Especially the bone, since the local axes of a bone do not correspond to the scene like for every other type of object.

First, set your Transform orientation to Local :



Then select your object in object mode, it should show you right away.

For the bone, it's a little bit different. To check a bone's local axes, you have to switch to pose or edit mode first, then select it. (Or enable the axes display option of the armature.)