Abstract: In recent years, the appearance of land finance and local financing platform makes the constraint of the existing fiscal system on the behaviors of local governments become softer. Under such institutional environment, when making fiscal policies of discretionary nature, local governments would consider less the regional economic stabilization, but focus more on fiscal revenue and local interests. This would cause the fiscal activities of the local governments to display more traits of randomness, which goes against the regional economic stabilization. Though decomposing the fiscal policies of local governments and making use of the provincial panel data, it is found that the local discretionary fiscal policy can play a certain role in stabilizing the abnormal consumption, but would aggravate the abnormal fluctuation of investment. Compared with the consumption fluctuation, the investment fluctuation is usually the main cause for economic fluctuation. Therefore, as a matter of fact, the discretionary fiscal policies of China’s local governments contain larger implicit economic fluctuation risks. This conclusion provides empirical support for constructing the endogenous institutional constraints on the economic activities of local governments in the next step of fiscal system reform.

Key words: soft constraint of fiscal system; discretion-dependence; regional economic fluctuation