Should we get rid of the penny?

Greg Mankiw says yes, and I am inclined to agree.  When I lived in New Zealand, they didn’t have Kiwi pennies and no one minded.  My problem, however, is that I don’t know what to do with sales tax (New Zealand had a General Services Tax [correction: Goods and Services Tax], akin to a VAT).  In essence we would have to abolish sales tax on "small" items.  That idea warms my libertarian heart, but what is then to stop suppliers from selling a car piece by piece, painted inch by painted inch?  (But of course they wouldn’t ring it up that slowly at the cash register.)  Must we eliminate sales taxes altogether?  Or can the law accurately specify what is the "natural unit" of a given commodity purchase?  Inquiring minds wish to know…

Here are some relevant links on penny elimination.  It is an interesting microeconomic (macroeconomic?) problem to figure out which prices get rounded up to the nearest nickel and which prices get rounded down.  A related question is why businesses do not already round to the nearest nickel; of course some do.


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