This chapter examines the role of decentralisation indicators and their use for empirical research. The chapter reviews first the conventional approach for capturing the degree of fiscal decentralisation. Second, in order to capture the effects of fiscal decentralisation in empirical research, the data and estimation issues are discussed. Third, the construction of indicators to capture the degree of fiscal decentralisation should be informed by recent incentive theory. Even if a transfer is a lump sum, incentive effects may still exist. The concept of the soft budget constraint is useful for understanding the incentive structure behind lump sum transfers. The design and the timing of transfers are important. If the transfer is designed and allocated ex post after local government has undertaken specific actions, the transfer should not be regarded as a lump sum transfer ex post. The theoretical models suggest that a taxonomy of transfers is complicated and indicators of fiscal decentralisation should be carefully designed.