0.001% and Counting: Revisiting the Price Rounding Tax

TL;DR

This study quantifies the minimal impact of rounding in Israeli cash transactions after removing low-denomination coins, showing a negligible average tax of 0.001-0.002% on consumer revenues, informing coin elimination debates.

Contribution

It provides detailed empirical estimates of rounding effects in Israel, highlighting their small economic impact and informing policy discussions on coin denomination elimination.

Findings

Rounding tax averages between 0.001% and 0.002% of revenues.

Minimal impact of coin removal on consumer costs.

Data covers various retail sectors in Israel.

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.