The study investigates the effectiveness of intergovernmental fiscal transfers for reducing educational inequality in Indonesia. Using panel data of 34 provinces of Indonesia from 2011 to 2019, this study examines how intergovernmental fiscal transfers, namely, the General Allocation Fund (DAU), Special Allocation Fund (DAK), and School Operational Assistance Fund (BOS), can influence the education Gini ratios, representing the distribution of educational equity. Applying the generalised method of moments estimation, the study shows that the DAU and DAK increase educational inequality owing to ineffective formulation and utilisation. Fortunately, the BOS can effectively reduce educational inequality since it is used to finance school operations and provide free education for citizens. The study suggests the need to improve local government spending on education towards more non-routine expenditure to increase the quantity and quality of education. Several improvements are required in teacher and school management and budget planning, followed by regular monitoring and evaluation.