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Eliminating the Penny in Canada: An Economic Analysis of Penny-Rounding on Grocery Items

Christina Cheung ()
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Christina Cheung: University of British Columbia

Atlantic Economic Journal, 2018, vol. 46, issue 2, 231-239

Abstract: Abstract In theory, the nearest-nickel rounding scheme renders no financial gains for anyone given that each final digit has the same probability of appearing. However, in practice, rounding may yield non-zero net effects as most store prices end with nine. In this paper, price data from representative Canadian grocery stores are used to assess whether the current rounding system imposes a monetary loss on firms or consumers. Specifically, I evaluate how one- to ten-item purchases and the six different Canadian provincial sales tax rates influence penny-rounding. The results show that penny-rounding financially benefits the firms at the expense of the consumers, imposing a net transfer of approximately $3.27 million CAD from consumers to grocery vendors every year. This amount averages to $157 of additional revenue for a typical grocery store per year.

Keywords: penny; rounding tax; grocery; D11; E47; C63 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:kap:atlecj:v:46:y:2018:i:2:d:10.1007_s11293-018-9584-8