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Was India’s demonetization redistributive? Insights from satellites and surveys

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  • Chanda, Areendam
  • Cook, C. Justin

Abstract

On November 8, 2016, the Indian government abruptly demonetized 86% of its currency in circulation in an attempt to reduce black money, corruption, and counterfeiting. Yet, 99% of the currency was eventually returned to banks. In this paper, we empirically investigate the medium term effects of the policy. We document that both poorer regions and poorer households experienced relative and absolute increases in economic outcomes over the year and a half that followed. Utilizing monthly night-light data, we estimate that districts in the poorest quintiles experienced an increase in GDP per capita 11% greater than the richest. Using a longitudinal survey of expenditures and incomes for more than 140,000 households, we also show that the poorest quintiles had relative increases in expenditures and incomes of 35% and 18% respectively in the following eighteen months.

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  • Chanda, Areendam & Cook, C. Justin, 2022. "Was India’s demonetization redistributive? Insights from satellites and surveys," Journal of Macroeconomics, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:jmacro:v:73:y:2022:i:c:s0164070422000374
    DOI: 10.1016/j.jmacro.2022.103438
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    1. Surender Kumar & Paramjit Author-Department of Economics, Delhi School of Economics, 2023. "Does Financial Inclusion Enhance Tax Revenue: Indian Experience," Working papers 335, Centre for Development Economics, Delhi School of Economics.

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    More about this item

    Keywords

    Monetary policy; Regional economic growth; Poverty headcount ratio; Income inequality; Household consumption; Transitory shocks; Difference in difference; Nighttime lights; Bank deposits; Indian economy;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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