Consumer responses to gasoline price and non-price policies

Abstract

Gasoline consumption in emerging economies have been rising rapidly due to economic growth and increasing urbanization rate in recent years. However, the development has brought about new socio-economic and environmental challenges leading governments to adopt various policies to control the trend. Although the impacts of price changes on gasoline consumption are well-researched in the literature, studies on different policies in a specific country is limited. In this paper, we investigate the impact of three distinct policies (price reform, rationing, and fuel-efficiency) on consumer responses in Iran. We estimate price, income, and efficiency elasticities across household characteristics, income groups, and provinces using the AIDS model and the household expenditures data for the period 2005–2016. The results show that the average price elasticity is -76, however, it varies across household characteristics, time, and space. The price responses are greater in provinces neighbouring the countries with high price differentials and welfare losses of price reform are more sever for lower income families. The estimated elasticities under different policy regimes show that energy price reform has led to significantly higher elasticities, while rationing has led to decreased elasticities. The more stringent efficiency regulation and increasing imports of fuel-efficient cars have also increased elasticities.