This study aims to examine the effect of fiscal decentralization on economic growth and social welfare. Samples of the research were districts / cities by province in Indonesia except Jakarta. This research is utilizing secondary data from Central Statistics Agency within period from 2005 until 2011. Data were analyzed by applying stuctural Equation Modeling (SEM) through AMOS program. Results of the research indicate that first, fiscal decentralization has negative and significant effect on economic growth; second, economic growth has positive and significant impact on social welfare; and third, fiscal decentralization has positive and significant impact on social welfare.Keywords: fiscal decentralization, economic growth, social welfare.