Denomination structure, digital payments and the shadow economy

Presented by Ayushi Bajaj, Monash University

Abstract

Digital means of payments are getting increasingly popular but they come at a fixed cost, hence are not accessible to everyone alike.  Carrying small change in cash is useful as it gives flexibility in exchange but it is also costly to carry many bills. Besides, cash lends anonymity in exchange, facilitating a shadow sector characterised by tax avoidance. We model these aspects in a monetary model and simulate a currency change policy shock based on the Indian case to study its effects on output, digitisation, and tax compliance. We find a clear short-term loss of output following such a shock. The model also indicates a possible rise in rural-urban divergence due to a deepening of the digital payments divide.

About the presenter’s visit

Dr Ayushi Bajaj will be visiting the School of Economics on Wednesday 17^th July 2019.  While here she will be using room 520A Colin Clark Building.  If you would like to meet with her or have lunch or dinner with her please contact Dr Jorge Miranda Pinto who will be her host while at The University of Queensland.  Dr Jorge Miranda Pinto can be contact on j.mirandapinto@uq.edu.au.