Abstract
We exploit three major transport fuel (gasoline and diesel) subsidy reforms in Iran, as quasi-experiments, to investigate the impact of permanent upward price changes on the responsiveness of fuel consumption. We employ monthly regional-level data of fuel consumption in Iran and also explicitly account for outbound cross-border smuggling from Iran to estimate the short, intermediate, and long-term price elasticity of demand. We find that price elasticity and price levels are inversely related to each other. All of our estimations also suggest a substantial impact of subsidy reforms on consumers’ behavior such that the magnitude of price elasticities consistently increases after each of the three major reforms. Finally, we find that fuel consumption is more responsive to a change in domestic price in the longer run. Our paper provides quantitative evidence of behavior change after a subsidy reform program, which can be used to better set fiscal and environmental targets.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
