Eliminating the Penny from the U.S. Coinage System: An Economic Analysis

Raymond Lombra ()
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Raymond Lombra: Pennsylvania State University

Eastern Economic Journal, 2001, vol. 27, issue 4, 433-442

Abstract: Removing the penny from circulation will have significant adverse direct effects on consumers. Simulations show that the resulting need to round prices will generate a rounding tax of no less than $600 million a year. The inflationary impact of rounding will probably be small. However, even a small effect will cumulate over time to a considerable sum; removing the penny would raise government outlays by about $950 million in 2005 and by $2 billion in 2010. Significant negative effects on firms are also identified. The evidentiary requirement for removing the penny from circulation does not yet appear to meet necessary standards. If and when seigniorage turns negative and inflation reduces the real value of a penny substantially further, then removal will be more attractive.

Keywords: Coinage (search for similar items in EconPapers)
JEL-codes: E42 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (8)

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