Abstract **

Should tax judges think about the economy when reaching a judicial decision? Economic crises are a given and inevitable part of the economy. The world is currently living through such a crisis due to the Covid-19 global pandemic. As part of their efforts to stabilize the economy during crises or even during “regular” business cycles, governments implement fiscal policy through the tax and transfer systems. Yet, although the traditional fiscal stabilizers can promote economic stabilization more accurately, their design and application are costly and complicated, and their implementation is not flawless.

Tax courts and tax judges can also serve as fiscal stabilizers during economic crises because judicial decisions in tax disputes have fiscal implications. However, scholars have paid little attention to the fiscal stabilizing potential of courts. This article fills this lacuna, offering a novel cost-benefit framework for analyzing whether tax courts should consider the macroeconomic environment when making judicial decisions, and if so, how? This framework is based on empirical findings from courts in the United States and Israel, according to which business cycles have influenced judicial decisions. The analysis comprises three incremental steps: First, can courts serve as fiscal stabilizers when making judicial decisions, particularly in tax cases? Second, should they act as fiscal stabilizers? And third, how should the judicial fiscal stabilization mechanism be shaped?