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

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

605/2022 Satadru Das, Lucie Gadenne, Tushar Nandi and Ross Warwick
working papers,public policy
Journal of Public Economics
https://doi.org/10.1016/j.jpubeco.2023.104907

605/2022 Satadru Das, Lucie Gadenne, Tushar Nandi and Ross Warwick

This paper investigates the effect of electronic payments technology on firms’ tax compliance in a large developing economy. We consider India’s demonetization policy which, by limiting the availability of cash, led to a large increase in the use of electronic forms of payments. Using administrative data on firms’ tax returns and variation in the strength of the demonetization shock across local areas, we find that greater use of electronic payments leads to firms reporting more sales to the tax authorities. This effect is strong enough to explain roughly half of the large (11%) increase in reported sales observed during demonetization.

Public policy and data

Journal of Public Economics

https://doi.org/10.1016/j.jpubeco.2023.104907