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

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  • Das, Satadru
  • Gadenne, Lucie
  • Nandi, Tushar
  • Warwick, Ross

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, Satadru & Gadenne, Lucie & Nandi, Tushar & Warwick, Ross, 2022. "Does going cashless make you tax-rich? Evidence from India's demonetization experiment," CEPR Discussion Papers 16891, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16891
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    Cited by:

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    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;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • 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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