With funding from the United Nations Capital Development Fund (UNCDF), the Local Bodies Fiscal Commission (LBFC) launched this study to shed light on the state of fiscal decentralization as originally intended under the Nepal Local Self Governance Act, identify lessons learned and suggest opportunities for ensuring successful fiscal decentralization policies and transition measures to the governance structures anticipated under the new constitution. This study highlights the extent to which the local bodies are exercising the fiscal decentralization provisions provided under the LSGA and identifies key recommendations needed to facilitate the effective transition with regards to fiscal decentralization from the current unitary government structure to the expected devolved federal government structure under the new constitution. The study lays the foundation for further detailed work on the functional analysis of sub-national expenditure and revenue responsibilities which will be closely aligned with the work undertaken by the Administrative Restructuring Commission (ARC).