0.001% and Counting: Revisiting the Price Rounding Tax

Abstract

In 1991 and 2008, Israel abolished the equivalents of 1-cent and 5-cent 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 between 0.001 percent and 0.002 percent 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-cent and 5-cent coins in the US.