Was India’s demonetization redistributive? Insights from satellites and surveys

Abstract

On November 8, 2016, the Indian government abruptly demonetized 86% of its currency in circulation in an attempt to reduce black money, corruption, and counterfeiting. Yet, 99% of the currency was eventually returned to banks. In this paper, we empirically investigate the medium term effects of the policy. We document that both poorer regions and poorer households experienced relative and absolute increases in economic outcomes over the year and a half that followed. Utilizing monthly night-light data, we estimate that districts in the poorest quintiles experienced an increase in GDP per capita 11% greater than the richest. Using a longitudinal survey of expenditures and incomes for more than 140,000 households, we also show that the poorest quintiles had relative increases in expenditures and incomes of 35% and 18% respectively in the following eighteen months.