Abstract
Price and income elasticities of gasoline demand show whether the price policy, pursued by the Iranian government, can decrease the high gasoline consumption sufficiently or not. Since the two oil price shocks in 1970 and 1973, interest in the study of oil products demand has increased considerably, especially on gasoline. High gasoline consumption is a serious crisis in Iran, posing economically, politically, and environmentally threats. In this study, the elasticities are estimated over three intervals, short run, intermediate run, and long run in Iran during 1976-2010, by putting the estimates of Error Correction Model (ECM), static model, and dynamic model in an increasing order, respectively. The short run, intermediate run, and long run price elasticities are -0.1538, -0.1618, and -0.3612 and the corresponding income elasticities are 0.2273 - 0.3581, 0.4636, and 0.7284, respectively. Not only do these elasticities imply that the gasoline demand is price and income inelastic but also the adjustment velocity, estimated by ECM, is a low point at -0.1942. Based on the estimations, the gasoline demand responds to the changes of price and income slightly and slowly. Therefore, policy makers should develop more strategies to reduce gasoline consumption, for example, substitute goods, public transportation systems, and environmental standards settings.
Highlights
Since the two oil price shocks in 1970 and 1973, interest in the study of oil products demand has increased considerably, especially on gasoline [1] [2]
The main objective of this paper is to evaluate the price and income elasticities of gasoline demand in Iran
The short run and long run elasticities are estimated by the Error Correction Model (ECM) and dynamic model
Summary
Since the two oil price shocks in 1970 and 1973, interest in the study of oil products demand has increased considerably, especially on gasoline [1] [2]. These studies assessed the economical, environmental, and political impacts by evaluating the key elements of gasoline demand. High gasoline consumption is a serious crisis in Iran, posing economically, politically, and environmentally threats [6]. It has resulted in environmental pollution, reducing social welfare [5] These threats have raised the concerns with the high gasoline consumption
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