This paper discusses how countries with decentralized governments can create good financial relationships between the central government and lower levels. The concepts of "vertical gap" and "vertical balance" help identify and solve key challenges. By using these concepts, policymakers can make sure that subnational governments have enough money from transfers, their own revenues, and borrowing to spend efficiently. The paper also gives ideas on how to set up decentralization systems well, including how to decide who gets money and who spends it, how to use transfers, and when to borrow money.