The paper showed that fiscal decentralization plays an important role for modern states. In most modern states, there are three different levels of government: central, regional, and local government. It has been established that fiscal decentralization refers to the delegation of powers and responsibilities from the central government to lower units of government. These are units of local and regional self-government, which includes cities, municipalities and counties. These units can independently collect revenues and decide on their spending. Nevertheless, fiscal decentralization has its advantages but also disadvantages. In Croatia, fiscal decentralization was introduced in 2001, when regulations were passed introducing changes to the state and public administration system. Local and regional self-government is developing, and certain tasks of state administration have been decentralized and transferred to the area of local and regional selfgovernment. This was made possible by the amendment of the Constitution from 2000, as well as the adoption of the Law on Local and Regional Self-Government. Amendments to the said Act also regulated the issue of financing decentralized operations.