Demonetisation: Impact on the Economy

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Tax Research Team: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: The argument posited in favour of demonetisation is that the cash that would be extinguished would be black money and hence, should be rightfully extinguished to set right the perverse incentive structure in the economy. While the facts are not available to anybody, it would be foolhardy to argue that this is the only possibility. Therefore, it is imperative to evaluate the short run and medium-term impacts that such a shock is expected to have on the economy. Further, the impact of such a move would vary depending on the extent to which the government decides to remonetise. This paper elucidates the impact of such a move on the availability of credit, spending, level of activity and government finances.

Keywords: demonetization; cashless transactions; credit; tax evasion (search for similar items in EconPapers)
JEL-codes: H25 H27 (search for similar items in EconPapers)
Pages: 18
Date: 2016-11
New Economics Papers: this item is included in nep-iue and nep-pbe
Note: Working Paper 182, 2016
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