Abstract: Based on Barro’s government spending endogenous growth model in 1990, this paper constructs an analytical framework that includes fiscal decentralization and labor employment, and makes empirical study based on the panel data of China’s 282 cities for the period 2003-2010. The results of empirical study show that, the relationship between fiscal revenue, fiscal expenditure decentralization and transference of redundant rural labor force show significant “inverted U-shape”. Moreover, the optimal fiscal revenue and expenditure decentralization is 1.7847 and 3.4830. Under the principle of “match between total disposable local revenue and expenditure responsibility”, improving the local municipal government fiscal revenue decentralization and reduce its fiscal expenditure decentralization, and further improving the provincial fiscal transfer payment system, will be the key to the Sub-National fiscal decentralization reform.