Abstract
This study investigates the income and price elasticities of gasoline demand for a fuel subsidizing country case, applying three different time-varying coefficient approaches to the data spanning the period from January 2002 to June 2018. The empirical estimations concluded a cointegration relationship between gasoline demand, income, and gasoline price. The income elasticity found ranges from 0.10 to 0.29, while the price elasticity remains constant over time, being −0.15. Income elasticity increases over time, slightly decreasing close to the end of the period, which is specific for a developing country. In the short run, gasoline demand does not respond to the changes in income and price. The policy implications are discussed based on the findings of the study. Research results show that since the income elasticity of demand is not constant, the use of constant elasticities obtained in previous studies might be misleading for policymaking purposes. An increase in income elasticity might be the cause of the inefficiency of the existing vehicles. The small price elasticity allows to say that if policy makers plan to reduce gasoline consumption then increasing its price would not substantially reduce the consumption. The current situation can be utilized to increase energy efficiency and implement eco-friendly technologies. For this purpose, the quality of existing transport modes can be improved. Meanwhile, to meet households’ needs, policies such as providing soft auto loans need to be formed to balance the recent drop in car sales.
Highlights
Estimation of energy demand has received growing attention in a global context
Before conducting the cointegration exercises, following the methodology we should choose the relevant model based on the Schwarz information criterion (SIC), that is, the optimal number for polynomials (p) and trigonometric pairs (q) should be chosen for both coefficients
For oil-dependent countries, proper use of oil products, in addition to following a sustainable economic development path and using eco-friendly technologies, is important in order to maximize the benefit for the current generation, and convey it with increased “value” to the future generations
Summary
Estimation of energy demand has received growing attention in a global context. In particular, the impacts of disposable income of households and gasoline price are widely scrutinized.The elasticities of gasoline demand are used to measure the responsiveness of gasoline consumption to changes in income and gasoline prices. Estimation of energy demand has received growing attention in a global context. The impacts of disposable income of households and gasoline price are widely scrutinized. The elasticities of gasoline demand are used to measure the responsiveness of gasoline consumption to changes in income and gasoline prices. An elasticity value of −0.5 means that for every 1 percent increase in the price of gasoline, gasoline consumption falls by 0.5 percent. An elasticity value of 0.5 means that for every 1 percent increase in income, gasoline consumption increases by 0.5 percent. Income and price elasticities of demand for petroleum products are of great importance for policymakers to manage and forecast demand and evaluate policies
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