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It is a boldly held view that the assignment problem in a federal set up is less challenging than problems witnessed in intergovernmental fiscal transfers (both grants and revenue sharing). The issue of challenges to intergovernmental fiscal transfers and possible options of channeling them did not, however, attract much attention as it deserves and this work is a slight attempt to fill the gap thus created. It is especially challenging in countries such as Ethiopia where states are substantially dependent on the federal government to cover the lion s share of their expenditures. The book argued that the prevalent vertical fiscal imbalance of the states in Ethiopia could not only be rectified through fiscal transfers unless we sought some other options, including revisiting the provisions of the Federal Constitution, to boost the fiscal capacity of the states. The book is especially important for any organ interested in the functioning of the Ethiopian fiscal federalism as compared to other three federal countries (Germany, India, and Nigeria) and policy makers that tend to formulate effective grant and revenue sharing formulas.