This paper analyzes the effect of intergovernmental transfers on fiscalequalization. Transfer policies are expected to narrow the fiscal power gapsamong local governments in different economic conditions. However, thepolicies may reduce inequality by rearranging rankings as well. According toLerman and Yizhaki(1995) tradition, we decompose changes in the Ginicoefficient by various Korean transfer policies across governments in 2006 intogap-narrowing and reranking components. The paper finds that although bothequalization and categorical grants from the central government to localgovernments decrease the Gini coefficients, the reranking effects are sodominating that the gap-narrowing effects become negative at the margin. Itimplies that the current intergovernmental transfers result in over-equalizationof fiscal power gaps.