This dissertation attempts to analyze the effects of fiscal decentralization on corruption theoretically as well as empirically in case of Pakistan. Using a tax competition framework with rent-seeking behavior, we show that that fiscal decentralization leads to a lower level of corruption. For empirically analysis, we measure fiscal decentralization with respect to both revenue and expenditure assignments. We estimate the impact of both revenue and expenditure decentralization on corruption using time series data over the period 1980-2010 by employing OLS and TSLS. The results confirm the statistically significant inverse relationship between fiscal decentralization and level of corruption in Pakistan. These findings suggest that the process of fiscal decentralization is helpful in achieving the long run economic growth through its mitigating effect on corruption. However, strong political commitment is required to reap the benefits of fiscal decentralization in term of eradication of corruption from the economy Supervisor:- Dr. Zafar Mueen Nasir