Fiscal system and organization of fiscal relations among different levels of public authorities are of great importance to the satisfaction of public needs at the state and local level as well as for the overall functioning of the socioeconomic system. The contemporary relations between the central and sub-central governments are strongly influenced by decentralization trends. At the same time, the processes of functional, fiscal and territorial decentralization are taking place in many states all over the world. Fiscal decentralization is necessary to achieve an appropriate distribution of public affairs (devolution of expenditure responsibilities) between the central and lower levels of government while ensuring sufficient public (fiscal) revenues to perform tasks in their area of responsibility. This transfer of responsibilities and functions to local and regional self-government should contribute to a more efficient system of public goods delivery that is in line with the expressed citizens’ preferences. The systems of local and regional self-government and models of financing of local and regional self-government are the key elements in achieving the fiscal decentralization goals. Therefore, in addition to the review of theoretical insights into the fiscal system, fiscal decentralization and the system of regional and local self-governments, the subject of this paper is an analysis of the effects of fiscal decentralization on the model of financing of local and regional self-governments in the Republic of Croatia in the period from 2003 to 2013, as well as proposal of measures (guidelines) that would result with improvement of the existing model in the area of individual financing (budget) sources and uses of the EU funds. The expected scientific contribution of the paper is achieved by proving the research hypotheses and suggesting the improved model of financing of local and regional self-governments under the assumption of retaining the same expenditure responsibility division among different government levels and the same territorial organization. The structure of the paper is divided into seven chapters. After the introductory part, the basic theoretical knowledge and features of the fiscal system and fiscal decentralization are explained in the second chapter. Special attention is dedicated to the structure of fiscal system, the theoretical principles of fiscal federalism, the relations between decentralization and macroeconomic variables, the implementation of fiscal decentralization programs and the fiscal decentralization indicators. The third chapter gives an overview of the basic concepts related to local and regional self-government, and considers its role and importance in the system of the public governments. The research framework and the methodology of scientific research used in the paper are presented in the fourth chapter. The fifth chapter of the paper contains the research results of the system of local and regional self-government in the Republic of Croatia. The research covers the administrative and territorial structure of local and regional self-government, the model of financing of the local and regional selfgovernment, as well as the effects of fiscal decentralization on local and regional selfgovernment budgets in the period from 2003 to 2013. The research results and possible measures for improvement of the existing model of financing of the local and regional self-government according to the individual financing sources of budget revenues are discussed and presented in the sixth chapter. Additionally, possibilities and ways of using the available money from the EU structural funds to finance projects within the framework of financing model of the local and regional self-government are considered. The most important results of the scientific research on the functioning and financing of the local and regional self-government in the Republic of Croatia are systematically presented in the concluding chapter of the paper.