Cash Holding and Tax Evaded Incomes in India – A Discussion

The paper makes an analysis of cash holdings in India and attempts to test its association with tax effort and government spending. The finding arrived is that the ratio of Cash holding to Nominal GDP does not have a statistically significant association with tax GDP ratio, but has the same with government spending. The empirical examination of data leads to a hypothesis that the monetarist approach of taking cash holding as a proxy for either tax evasion or impeding tax effort does not seem to hold good in the Indian context. The paper also makes an attempt to estimate the size of the Tax Evaded Incomes at aggregate level without bifurcation Corporation Tax and Personal Income Tax) in India during the recent period by using data on factor incomes published by the Central Statistical Office.