Does going cashless make you tax-rich? Evidence from India’s demonetization experiment

This paper investigates the tax compliance effects of India’s demonetization policy, which limited cash availability for a short period of time. Using administrative data on firms’ tax returns and variation in the strength of the demonetization shock across local areas, we find that demonetization i...

Full description

Saved in:
Bibliographic Details
Published in:Journal of public economics 2023-08, Vol.224, p.104907, Article 104907
Main Authors: Das, Satadru, Gadenne, Lucie, Nandi, Tushar, Warwick, Ross
Format: Article
Language:English
Subjects:
Demonetization
Electronic payments
Tax compliance
Citations: Items that this one cites
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper investigates the tax compliance effects of India’s demonetization policy, which limited cash availability for a short period of time. Using administrative data on firms’ tax returns and variation in the strength of the demonetization shock across local areas, we find that demonetization increased sales reported to the tax authorities and tax payments. Investigating mechanisms, we show that demonetization led to a large increase in the use of electronic forms of payments. We argue that this likely strengthened tax authorities’ capacity to observe tax liabilities and enforce compliance.
ISSN:0047-2727
1879-2316
DOI:10.1016/j.jpubeco.2023.104907