Fiscal deficit is a common characteri stic of developing countri es. Particularl y, SubrnSaharan African countries have difficulty in generating revenue to cover theirrnex penditures due to weak tax admini stration, tax evasion and corruption problem.rnEt hiopia also shares this feature of fisca l deficit, whi ch is always fi nanced throughrnex ternal ass istance, and regions lIsually depend on fede ral grants for their expenditures.rnFor example, in the year 93/94-97/98 regions coll ected less than 20% of the nationalrnrevenue, whereas regions accounted from 34 to 44% of the to tal expenditure in thernco untry and they only covered 25 to 35% of th eir expenditures from their revenue.rnAmong regions themselves, fi scal capacities vary. Some regions generate more thanrnothers do while some regions generate less. In 97/98-99/00, the federal grants coveragernranged from 94.36% in Gambella to 9.47% in Addis Ababa which implies th at Gambellarngenerate less revenue than its expenditure in the country.rnThen the objecti ve of this research is to examine the performance of revenue and revenuerngeneration constrai nts in the Gambella region froin 93/94-04/05. Thi s study is a mixed ofrnex planatory and desc riptive researches where secondary and primary data were used. Thernprimary d ata were collected t IU'ough depth i nlerview a nd focus group discussion fromrnpeople that have experience in tax ad ministrat ion. Some community leaders who wererninvo lved in tax coll ection were also interviewed individually. The research findingsrnshowed that Gambella region in 00/01-04/05 covered only 7.6% of its expenditure whilern92.4% of its expend iture is covered by federal grants. During 00/01-04/05 the federalrngrants coverage ranged from 92.36% in Gambella to 98% in Addi"s Ababa. Hence,rnGambella depends highly on federal grants of all the regions due to low institution alrncapacity, low economic base and political instabi li ty.rnIn ord er for the region to reduce this dependency on federal grants; it should increase itsrnrevenue by alleviating political instabi li ties in the region; and weaknesses in institutionrnsuch as weakness in audit, accounting and monito ring and evaluation systems of revenuerndepartment of the region. Incentives mechanisms for taxpayers to pay more tax are alsornneeded to col lect more tax in the region.