An Economic and Public Policy view of Demonetization in India

Abstract

The paper will look at the recent demonetization exercise that the government of India imposed on its people. The demonetization exercise was marketed from a Public Interest perspective as a way to eliminate corruption, increase the tax base and to fight terrorism. However, the Public Choice perspective brings out the political self-interest involved in the demonetization exercise. The role of foreign and domestic interest groups involved in pushing for demonetization will be explored. Insights from Austrian Economics will show why top down planning fails and results in more controls. Insights from Public Policy shows that the lasting impact of demonetization is an increased interest in digital payments.

Keywords: Demonetization, Interest Groups, Black Money, Digitalization, Focusing Event, Knowledge problem

JEL Classification: K42, H59, Z18, B53