Does Going Cashless Make You Tax-Rich? Evidence from India's Demonetization Experiment

40 Pages Posted: 4 Feb 2022

See all articles by Satadru Das

Satadru Das

Government of India - Reserve Bank of India

Lucie Gadenne

University of Warwick

Tushar K. Nandi

National Council of Applied Economic Research

Ross Warwick

Institute for Fiscal Studies (IFS)

Date Written: January 2022

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.

Keywords: Demonetization, electronic payments, tax compliance

JEL Classification: H25, H26, O23

Suggested Citation

Das, Satadru and Gadenne, Lucie and Nandi, Tushar K. and Warwick, Ross, Does Going Cashless Make You Tax-Rich? Evidence from India's Demonetization Experiment (January 2022). CEPR Discussion Paper No. DP16891, Available at SSRN: https://ssrn.com/abstract=4026778

Satadru Das (Contact Author)

Government of India - Reserve Bank of India ( email )

Bakery Junction Service Road
Vazhuthacaud
Thiruvananthapuram, Kerala 695033
India

Lucie Gadenne

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Tushar K. Nandi

National Council of Applied Economic Research ( email )

New Delhi
India

HOME PAGE: http://sites.google.com/site/nanditushar/

Ross Warwick

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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