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Eliminating the Penny from the U.S. Coinage System: An Economic Analysis

Author

Listed:
  • Raymond E. Lombra

    (Pennsylvania State University)

Abstract

Removing the penny from circulation will have significant adverse direct effects on consumers. Simulations show that the resulting need to round prices will generate a rounding tax of no less than $600 million a year. The inflationary impact of rounding will probably be small. However, even a small effect will cumulate over time to a considerable sum; removing the penny would raise government outlays by about $950 million in 2005 and by $2 billion in 2010. Significant negative effects on firms are also identified. The evidentiary requirement for removing the penny from circulation does not yet appear to meet necessary standards. If and when seigniorage turns negative and inflation reduces the real value of a penny substantially further, then removal will be more attractive.

Suggested Citation

  • 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.
    • Handle: RePEc:eej:eeconj:v:27:y:2001:i:4:p:433-442
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/eeconj/Volume27/V27N4P433_442.pdf
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    Citations

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    Cited by:

    1. 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.
    2. Marko RaĊĦeta, 2017. "Eliminating the Fractional Part of Currency from Circulation (Pennies, Cents, Paras, Kopeikas). An Analytic Study," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(3), pages 520-529, June.
    3. Andrew Keinsley, 2013. "Do You Mind if I Round?: Eliminating the Penny A Structural Analysis," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201309, University of Kansas, Department of Economics.
    4. Ater, Itai & Gerlitz, Omri, 2017. "Round prices and price rigidity: Evidence from outlawing odd prices," Journal of Economic Behavior & Organization, Elsevier, vol. 144(C), pages 188-203.

    More about this item

    Keywords

    Coinage;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

    Statistics

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