Price Setting Rules, Rounding Tax, and Inattention Penalty

Doron Sayag (), Avichai Snir () and Daniel Levy ()
Additional contact information
Doron Sayag: Department of Economics Bar-Ilan University
Avichai Snir: Department of Economics Bar-Ilan University
Daniel Levy: Department of Economics Bar-Ilan University, Department of Economics, Emory University, ICEA, ISET at TSU, and RCEA

No 2024-07, Working Papers from Bar-Ilan University, Department of Economics

Abstract: We study Israel's "price rounding regulation" of January 1, 2014, which outlawed non-0- ending prices, forcing retailers to round 9-ending prices, which in many stores comprised 60%+ of all prices. The regulation's goals were to eliminate (1) the rounding tax—the extra amount consumers paid because of price rounding (which was necessitated by the abolition of low denomination coins), and (2) the inattention tax—the extra amount consumers paid the retailers because of their inattention to the prices’ rightmost digits. Using 4 different datasets, we assess the government’s success in achieving these goals, focusing on fast- moving consumer goods, a category of products strongly affected by the price rounding regulation. We focus on the response of the retailers to the price rounding regulation and find that although the government succeeded in eliminating the rounding tax, the bottom line is that shoppers end up paying more, not less, because of the regulation, underscoring, once again, Friedman's (1975) warning that policies should be judged by their results, not by their intentions.

Keywords: Price Rounding Regulation; Rounding Tax; Inattention Penalty; Round Prices; 9-Ending Prices; Just-Below Prices; Inflation (search for similar items in EconPapers)
JEL-codes: I26 J24 O14 O4 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2024-11
References: Add references at CitEc
Citations:

Downloads: (external link)
https://econ.biu.ac.il/sites/econ/files/working-papers/2024-07.pdf Working paper (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:biu:wpaper:2024-07

Access Statistics for this paper

More papers in Working Papers from Bar-Ilan University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Department of Economics ().