Gasoline Demand Elasticities Research Articles

The Response of Consumer Spending to Changes in Gasoline Prices

This paper estimates how overall consumer spending responds to changes in gasoline prices. It uses the differential impact across consumers of the sharp drop in gasoline prices in 2014 for identification. This estimation strategy is implemented using comprehensive, high-frequency, transaction-level data for a large panel of individuals. The average estimated marginal propensity to consume (MPC) out of unanticipated, permanent shocks to income is approximately one. This estimate accounts for the elasticity of demand for gasoline and potential slow adjustment to changes in prices. The high MPC implies that changes in gasoline prices have large aggregate effects. (JEL D12, G51, L11, L71, L81, Q35)

Gasoline demand elasticities in the world’s energy gluttons: a time-varying coefficient approach

In this paper, we estimate the price and income elasticities for gasoline demand in selected energy gluttons-China, India, USA, Russia, and Japan. Specifically, we employ a time-varying parameter approach which adequately deals with potential parameter instabilities and nonlinearities and effectively captures price and income elasticity variations over time, with each time period having its own set of coefficients. Our empirical findings reveal the following: gasoline consumption is price-inelastic and income-inelastic, there are movements in both the price and income elasticities, and the movements generally correspond with business cycle patterns of each of the countries; overall, sensitivity to price and income changes increase during periods of economic crises. Constant elasticity models overestimate price and income elasticities, and income is predominantly more elastic than price. Our conclusion is that policy mechanisms that are price-based such as gasoline taxes are likely to be unsuccessful in achieving consumption-cum-pollution reduction objectives in the energy gluttons. Such policies may, however, be effective if they ensure that gasoline prices rise at a greater rate than income. Such policies may also be useful for revenue-raising purposes.

Gasoline Demand Elasticities at the Backdrop of Lower Oil Prices: Fuel-Subsidizing Country Case

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.

Carbon Taxes and CO2 Emissions: Sweden as a Case Study

This quasi-experimental study is the first to find a significant causal effect of carbon taxes on emissions, empirically analyzing the implementation of a carbon tax and a value-added tax on transport fuel in Sweden. After implementation, carbon dioxide emissions from transport declined almost 11 percent, with the largest share due to the carbon tax alone, relative to a synthetic control unit constructed from a comparable group of OECD countries. Furthermore, the carbon tax elasticity of demand for gasoline is three times larger than the price elasticity. Policy evaluations of carbon taxes, using price elasticities to simulate emission reductions, may thus significantly underestimate their true effect. (JEL H23, L91, Q54, Q58)

Design and development of interdisciplinary learning in a new oncology unit of study in the new integrated pharmacy curriculum

Since the first oil crisis in the 1970s, demand for energy has undergone significant transformations. This paper intends to model the demand by the transportation sector for the petroleum products in Iran. We propose a structural time-series model with an underlying trend. After transforming the model to state-space form, we apply the Kalman Filter algorithm to estimate the parameters of the model for the period between 1980 and 2016. Results indicate that the underlying trend for gasoline and diesel demand by the transportation sector is non-linear. This trend can be used as proxy applicable for studying those variables which could enable us to explain technological improvements and changes in consumer preferences for gasoline and diesel over time. Results also show that technological improvements and changes in consumers’ behavior led to a decrease in the consumption of diesel in recent years while it has no decreasing effect on gasoline. Demand functions show that gasoline and diesel are inelastic. Gasoline price elasticity of demand ranges between −0.17 and −0.24. The price elasticity of demand for diesel is very low and statistically insignificant at the 5% level. The income elasticity of demand for gasoline and diesel ranges between 0.34 and 0.48, and between 0.33 and 0.52 respectively, being strongly statistically significant. Finally, this paper proposes that the price of fuel should be determined by market mechanism to reduce fuel consumption.

Structural time series model for energy demand in Iran's transportation sector

Since the first oil crisis in the 1970s, demand for energy has undergone significant transformations. This paper intends to model the demand by the transportation sector for the petroleum products in Iran. We propose a structural time-series model with an underlying trend. After transforming the model to state-space form, we apply the Kalman Filter algorithm to estimate the parameters of the model for the period between 1980 and 2016. Results indicate that the underlying trend for gasoline and diesel demand by the transportation sector is non-linear. This trend can be used as proxy applicable for studying those variables which could enable us to explain technological improvements and changes in consumer preferences for gasoline and diesel over time. Results also show that technological improvements and changes in consumers’ behavior led to a decrease in the consumption of diesel in recent years while it has no decreasing effect on gasoline. Demand functions show that gasoline and diesel are inelastic. Gasoline price elasticity of demand ranges between −0.17 and −0.24. The price elasticity of demand for diesel is very low and statistically insignificant at the 5% level. The income elasticity of demand for gasoline and diesel ranges between 0.34 and 0.48, and between 0.33 and 0.52 respectively, being strongly statistically significant. Finally, this paper proposes that the price of fuel should be determined by market mechanism to reduce fuel consumption.

Income and price elasticities of gasoline demand: An empirical analysis for Russia

Income and price elasticities of gasoline demand: An empirical analysis for Russia

Estimating the elasticities of gasoline demand for urban households in China

Estimating the elasticities of gasoline demand for urban households in China

The variability of gasoline demand in Cameroon

ABSTRACTIn this study, three models were used and historical data were considered for the years 1994–2013 to estimate short- and long-run price and income elasticities of gasoline demand in Cameroon. All three models produce significant estimates with price elasticity ranging between −1.433 and −0.151, while income elasticities range between 0.179 and 1.801. As it is the case in other developing countries where gasoline elasticities have been reported, consumers are highly inelastic in the short run whereas elasticities are greater than unity in the long run. This shows that gasoline demand in the long run is principally determined by the pace of economic activity. These results are in accordance with findings in three other African countries with comparable demographics to that of Cameroon. The results are useful in implementing policies aimed at regulating gasoline demand through price changes.

Structural shocks and dynamic elasticities in a long memory model of the US gasoline retail market

A structural multivariate long memory model of the US gasoline market is employed to disentangle structural shocks and to estimate the own-price elasticity of gasoline demand. Our main empirical findings are: (1) there is strong evidence of nonstationarity and mean reversion in the real price of gasoline and in gasoline consumption; (2) accounting for the degree of persistence present in the data is essential to assess the responses of these two variables to structural shocks; (3) the contributions of the different supply and demand shocks to fluctuations in the gasoline market vary across frequency ranges; and (4) long memory makes available an interesting range of convergent possibilities for gasoline demand elasticities. Our estimates suggest that after a change in prices, consumers undertake a few measures to reduce consumption in the short- and medium-run but are reluctant to implement major changes in their consumption habits.

Meta-analysis of the income and price elasticities of gasoline demand: public policy implications for Latin America

By means of a meta-analysis, this article sets out to estimate average values for the income and price elasticities of gasoline demand and to analyse the reasons for the variations in the elasticities reported by the literature. The findings show that there is publication bias, that the volatility of elasticity estimates is not due to sampling errors alone, and that there are systematic factors explaining these differences. The income and price elasticities of gasoline demand differ between the short and long run and by region, and the estimation can appropriately include the vehicle fleet and the prices of substitute goods, the data types and the estimation methods used. The presence of a low price elasticity suggests that a fuel tax will be inadequate to control rising consumption in a context of rapid economic growth.

Short-run and long-run elasticities of gasoline demand: The case of Korea

ABSTRACTThis paper investigates the demand function for gasoline in Korea using quarterly data covering the period 1991–2010. The long-run and short-run elasticities of demand with respect to gasoline price and national income are empirically examined using a co-integration and error correction model (ECM). Gasoline demand is relatively elastic to price and income change in both the long run and short run, and each elasticity is higher in the long run than in the short run. Moreover, gasoline demand response to price is higher than to income. This implies that a price demand-side management policy can be quite effective in Korea. Especially, the limitation of price change is important to the stabilization of gasoline demand.

Trade Balance and Fuel Demand in Kosovo

Abstract Gasoline and diesel are the main sources of fuel required for modern life and transportation, and the adjustment of gasoline and diesel prices has become a major public issue. The drastic fluctuations in recent international oil prices have affected retail gasoline and diesel prices also in the Western Balkan countries and prompted public opinion to question the pricing behaviors of oil companies. Kosovo, in the period of 17 years, has gone from a post-conflict environment into a state which is considered to be under transition. It has passed the reconstruction period by orienting itself toward the economic development and European Integrations. Price and income elasticities of gasoline demand show whether the price policy, pursued by the Kosovo government, can decrease the high gasoline consumption sufficiently or not. The high deficit of the current account of balance of payments is also a concern for the Kosovo’s economy; which is estimated up to 17.3% of the GDP after the foreign intervention. The deficit of current account is being considered is related to the energy dependency. Therefore, in order to overcome such problems, control over the gasoline demand is needed to control the deficit of current accounts. Keywords: oil price, economic development, imports, trade deficit.

How price inelastic is demand for gasoline in fuel-subsidizing economies?

In recent years, governments that have historically subsidized domestic fuel consumption face an ever-growing challenge in maintaining fuel subsidies and have embarked on subsidy reform. This paper estimates the price and income elasticity of demand for gasoline in countries where fuel prices are government-subsidized. We make use of biennial panel road-sector data for 32 countries over the 1998–2010 period and find demand for gasoline to be price inelastic both in the short run and long run. We estimate the short-run price and income elasticities at −0.05 and 0.16 and the long-run price and income elasticities at −0.25 and 0.81, respectively. It is our contention that concerned governments should play an active role in identifying and committing to a road map to progressively abandoning fuel subsidies. They should also not be discouraged by relatively small consumption corrections in the short run. A reduction in subsidies can eventually release considerable amount of resources for more crucial and potentially growth-enhancing public services such as education and health.

Price and Income Elasticities of Fuel Demand in Kosova

Gasoline and diesel are the main sources of fuel required for modern life and transportation, and the adjustment of gasoline and diesel prices has become a major public issue. The drastic fluctuations in recent international oil prices have affected retail gasoline and diesel prices also in the Western Balkan countries and prompted public opinion to question the pricing behaviors of oil companies. Kosova, in the period of 17 years, has gone from a post-conflict environment into a state which is considered to be under transition. It has passed the reconstruction period by orienting itself toward the economic development and European Integrations. Price and income elasticities of gasoline demand show whether the price policy, pursued by the Kosova government, can decrease the high gasoline consumption sufficiently or not. The high deficit of the current account of balance of payments is also a concern for the Kosova’s economy; which is estimated up to 17.3% of the GDP after the foreign intervention. The deficit of current account is being considered is related to the energy dependency. Therefore, in order to overcome such problems, control over the gasoline demand is needed to control the deficit of current accounts. Keywords: oil price, economic development, imports, trade deficit.

Are Gasoline Demand Elasticities Different Across Cities?

Are Gasoline Demand Elasticities Different Across Cities?

Modeling gasoline demand in the United States: A flexible semiparametric approach

The focus of this paper is on the modeling and estimation of quarterly state-level gasoline demand in the United States. The existing literature may not appropriately evaluate the price elasticity and income elasticity of gasoline demand. Most studies fail to address the possible heterogeneity in gasoline demand elasticities that may arise from a variety of sources. The endogeneity issue of gasoline price has remained redundant throughout the literature. I address these challenges using a flexible demand model and a recently developed estimation technique. The econometric approach allows for functional coefficients to accommodate the heterogeneity in demand elasticities. Several instrumental variables are used to investigate the endogeneity of gasoline price. The estimation results provide strong evidence of heterogeneous gasoline demand elasticities across states and over time. Some state-level attributes along with income and macroeconomic shocks are the potential sources of heterogeneity.

Price and Income Elasticities of Gasoline Demand in Iran: Using Static, ECM, and Dynamic Models in Short, Intermediate, and Long Run

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.

Elasticities of gasoline demand in Switzerland

Using cointegration techniques, we investigate the determinants of gasoline demand in Switzerland over the period 1970–2008. We obtain a very weak price elasticity of −0.09 in the short run and −0.34 in the long run. For fuel demand, i.e. gasoline plus diesel, the corresponding price elasticities are −0.08 and −0.27. Our rich dataset allows working with quarterly data and with more explicative variables than usual in this literature. In addition to the traditional price and income variables, we account for variables like vehicle stocks, fuel prices in neighbouring countries, oil shocks and fuel taxes. All of these additional variables are found to be significant determinants of demand.

The elasticity of demand for gasoline in China

This paper estimates the price and income elasticities of demand for gasoline in China. Our estimates of the intermediate-run price elasticity of gasoline demand range between −0.497 and −0.196, and our estimates of the intermediate-run income elasticity of gasoline demand range between 1.01 and 1.05. We also extend previous studies to estimate the vehicle miles traveled (VMT) elasticity and obtain a range from −0.882 to −0.579. • The price elasticity of demand for gasoline in China is between −0.497 and −0.196. • The income elasticity of demand for gasoline in China is between 1.01 and 1.05. • The price elasticity of demand for VMT in China is between −0.882 and −0.579.