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

Author

Listed:
  • Das, S

    (Reserve Bank of India)

  • Gadenne, L

    (University of Warwick, Institute for Fiscal Studies and CEPR)

  • Nandi, T

    (Indian Institute of Science Education and Research (IISER), Kolkata)

  • Warwick, R

    (Institute for Fiscal Studies)

Abstract

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.

Suggested Citation

  • Das, S & Gadenne, L & Nandi, T & Warwick, R, 2022. "Does going cashless make you tax-rich? Evidence from India’s demonetization experiment," CAGE Online Working Paper Series 605, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:605
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/wp605.2022.pdf
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    References listed on IDEAS

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    Cited by:

    1. Rösl, Gerhard & Seitz, Franz, 2022. "On the stabilizing role of cash for societies," IMFS Working Paper Series 167, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    2. Chen, Yutong & Chiplunkar, Gaurav & Sekhri, Sheetal & Sen, Anirban & Seth, Aaditeshwar, 2023. "How Do Political Connections of Firms Matter during an Economic Crisis?," IZA Discussion Papers 16131, Institute of Labor Economics (IZA).
    3. Rainone, Edoardo, 2023. "Tax evasion policies and the demand for cash," Journal of Macroeconomics, Elsevier, vol. 76(C).

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    More about this item

    Keywords

    tax compliance; electronic payments; demonetization JEL Classification:H26; O23; H25;
    All these keywords.

    JEL classification:

    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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