Over the last two decades, many countries around the world have been enthusiastically embarking on the path of decentralization. However, because of a preconceived idea that decentralization will automatically result in efficient allocation of public resources and due to the absence of an analytical framework and data, very little empirical work has been done in this area. Nor has much attention been given to an analysis of the factors enabling or constraining its outcomes. In this paper, we develop a theoretical model and use it to test empirically the impact of fiscal decentralization on rural infant mortality rates in India between 1990 and 1997. The random effect regression results show that fiscal decentralization plays a statistically significant role in reducing rural infant mortality rate and the results are robust. The results also show that the effectiveness of fiscal decentralization can be affected by other complementary factors such as the level of political decentralization.