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

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  • Christina Cheung

    (University of British Columbia)

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.

Suggested Citation

  • Christina Cheung, 2018. "Eliminating the Penny in Canada: An Economic Analysis of Penny-Rounding on Grocery Items," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(2), pages 231-239, June.
    • Handle: RePEc:kap:atlecj:v:46:y:2018:i:2:d:10.1007_s11293-018-9584-8
    DOI: 10.1007/s11293-018-9584-8
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    References listed on IDEAS

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    1. Raymond E. Lombra, 2001. "Eliminating the Penny from the U.S. Coinage System: An Economic Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 27(4), pages 433-442, Fall.
    2. Christopher Henry & Kim Huynh & Rallye Shen, 2015. "2013 Methods-of-Payment Survey Results," Discussion Papers 15-4, Bank of Canada.
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    Keywords

    penny; rounding tax; grocery;
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