Does the macroeconomic environment affect judicial decisions and thereby shape the law? Even though the normative significance of understanding judicial decision-making is undeniable, empirical research into how judges make decisions is woefully incomplete. This is the first Article to empirically examine the stabilizing fiscal potential of judicial decisions in tax disputes. In this Article, I use empirical methods to test whether macroeconomic conditions—namely, the business cycle—affect the outcomes of judicial decisions in tax cases. Economic theory prescribes either an anti-cyclical response to the business cycle or no response at all. I test this hypothesis with a novel dataset constructed of judicial decisions made by specialized tax judges from the district courts of Israel before and after the 2008 financial crisis. The evidence suggests business cycles affect judges’ decisions in tax disputes. But counter to the theoretical prediction, judges favor the tax authorities during economic downturns and favor the taxpayers during economic upturns. This pro-cyclical decision-making pattern may exacerbate economic instability.

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