Fiscal decentralization has formed an important component of recent institutional innovation,rnbeing widely adopted in both developing and developed countries. It has become a major policyrninitiative to achieve equity, efficiency, and accountability in the development efforts of manyrncountries. But surprisingly, there is little agreement in the empirical literature in its effects on arnnumber of outcomes. Accordingly, this paper aims to evaluate the effects of such kind ofrndecentralization on basic education and health outcomes in Ethiopia, which undertook a massiverndecentralization of fiscal resources to regions in 1994/95 and to districts in 2002/03. We estimaternthe impact of this policy by employing a regional panel data set collected from nine regions andrntwo administrative cities.rnThe results suggest that although the decentralization has been characterized by some kind ofrnvertical and horizontal fiscal imbalances, it has had a significant effect on increasing publicrnprimary gross enrollment and completion rates; and on the selected health outcomes too. Thernresults are also robust to the way fiscal decentralization is measured. Moreover, fiscalrndecentralization has achieved a satisfactory equity in tenns of both equality of opportunity andrninter-regional equity by reducing disparity in access to basic social services between previouslyrnunderserved and better-off regions, suggesting that fiscal decentralization has been a pro-poorrnpolicy. Thus, the study urges policy makers and development agencies to close the existing fiscalrngaps, possibly via fiscal equalization approach andlor relaxing some taxes to lower tiers ofrngovernment, for better development outcomes at the grassroots level.