0.001% and Counting: Revisiting the Price Rounding Tax*

Doron Sayag, Avichai Snir () and Daniel Levy ()
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Doron Sayag: Bar-Ilan University [Israël], Israel Central Bureau of Statistics
Avichai Snir: Bar-Ilan University [Israël]
Daniel Levy: RCEA - Rimini Center for Economic Analysis, Emory University [Atlanta, GA], Bar-Ilan University [Israël], ICEA - International Centre for Economic Analysis, ISET - International School of Economics at TSU

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Abstract: In 1991 and 2008, Israel abolished the equivalents of 1¢ and 5¢ coins, respectively, effectively eliminating low-denomination coins and introducing rounding in cash transactions. When totals were rounded up, shoppers incurred a small rounding tax. Using detailed data on price endings and basket sizes across supermarkets, drugstores, small groceries, and convenience stores, we estimate that the magnitude of the rounding tax borne by Israeli consumers averaged only 0.001%-0.002% of revenues in the fast-moving consumer goods markets. These findings have implications for the ongoing debate regarding the desirability and viability of abolishing the 1¢ and 5¢ coins in the US.

Keywords: Elimination of Low-Denomination Coins; 5¢ coin; 1¢ coin; Cost of Producing Low-Denomination Coins; Rigid and Flexible Prices; Currency Indivisibility; Just-Below Prices; 9-Ending Prices; Price Rounding Regulation; Round Prices; Rounding Tax (search for similar items in EconPapers)
Date: 2012-01-15
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Published in Contemporary Economic Policy, inPress, Forthcoming, ⟨10.1111/coep.70020⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05349980

DOI: 10.1111/coep.70020

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