Rural development is understood as a socio-economic process that consists of desired and positive qualitative and quantitative changes, leading to increased efficiency and productivity of rural businesses and the usefulness of rural households. This is in many ways determined by and at the same time embedded in the socio-economic development beyond local and regional level, and, consequently, also in general economic development. However, financial variables, including fiscal ones, quite rarely determine rural development. Therefore, the main objective of the article is to reduce this cognitive gap, which is of great importance also for regional and agri-food policy. The analysis is centered around the theory and practical achievements of fiscal federalism, which is a sub-discipline of public finances. According to this, the Author starts with presenting general assumptions of fiscal and environmental federalism. Then, focus is shifted to controversies related to fiscal decentralization in order to move on inter-jurisdictional competition and cooperation. In the background of this part of the analysis there is the Tiebout model, which is one of the most interesting conceptualizations of local and regional development mechanism. In the final part of the article the Author presents the key elements of Buchanan’s theory of club goods as a tool for optimizing the size of the local units.