Automatic stabilizers in the Japanese tax system

When studying the role of taxes as an automatic stabilizer, excluding the effects of discretionary tax reform is troublesome. A fruitful approach to identifying tax movements over business cycles would be to utilize cyclical information. From this perspective, we exploit wavelets in order to characterize the automatic response of taxes to output at business cycle frequencies in the postwar Japanese economy. We find the presence of automatic stabilizers in the Japanese tax system under the influence of relatively high output volatility but the absence of such stabilizers during the period of the “Great Moderation” in Japan in the 1980s.