This inquiry aims to examine the effect of intergovernmental fiscal transfers on fiscal behaviours of local governments in Ethiopia for the period 1992–2018. The empirical analysis shall follow the systems general methods of moments regression technique. The motivation for using this estimation technique is to provide special focus to the issue of endogeneity by estimating general methods of moment’s model. The empirical analysis will be supported with qualitative data to be obtained through discussion and interview with purposively selected people from relevant areas to the subject matter. The qualitative data will be embedded in the interpretation of the results of the empirical econometric estimations. The results will be checked for robustness by estimating alternative empirical specifications.