The Black money Crisis in India and Its parallels to Reaganomics

Abstract

This paper examines black money in India as an outcome of institutional design, where tax complexity, enforcement asymmetries, and behavioral incentives shape participation in the formal economy. Despite headline efforts like demonetization, which temporarily increased tax filings, the underlying drivers of non-compliance remain intact. Through a population-based model of the tax gap, this study estimates that nearly two-thirds of India’s taxable population does not file returns, even when economically eligible. Rather than framing this as evasion in the traditional sense, the analysis views it as a structural mismatch between tax policy and taxpayer engagement. In response, the paper proposes a framework centered on simplified marginal rates and targeted sectoral reforms, particularly in real estate and micro, small, and medium-sized enterprises (MSMEs), to make compliance more accessible. While global proposals, such as Zucman’s minimum billionaire tax, reflect broader momentum, India’s long-term progress depends on reforms that reduce friction and rebuild trust in the tax system.