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...

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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
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Nandi, Tushar
Warwick, Ross
description 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.
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source ScienceDirect Freedom Collection
subjects Demonetization
Electronic payments
Tax compliance
title Does going cashless make you tax-rich? Evidence from India’s demonetization experiment
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