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Price elasticity of demand for fuels by income level in Mexican households

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  • Díaz, Araceli Ortega
  • Medlock, Kenneth B.

Abstract

The price elasticities demand of electricity, gas, oil fuel, gasoline and steam coal are estimated using household surveys from 1992 to 2014. The analysis uses alternative econometric techniques – OLS, SURE, and Quadratic Almost Ideal Demand System (QUAIDS) – the last of which is based on the methodology of Banks, Blundell and Lewbel considering socioeconomic characteristics of the households to account for the difference in demand of energy related goods. It is found that the demands for fuels are price inelastic, and the differences in elasticities between poor and non-poor households are small but statically significant. The income elasticity of demand is generally found to be positive and higher in absolute value than price elasticity, and the differences are greater between poor and non-poor. Consequently, there would be a differentiated reaction of consumers to changes in energy prices according to their poverty status. Steam coal and firewood, each of which could be considered inferior goods, stand as counterexamples in that the income elasticity is found to be negative. The contribution of this study helps policy makers to analyze household welfare when applying changes in energy prices in the face of fiscal and/or energy reforms, such as those Mexico is implementing.

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  • Díaz, Araceli Ortega & Medlock, Kenneth B., 2021. "Price elasticity of demand for fuels by income level in Mexican households," Energy Policy, Elsevier, vol. 151(C).
    • Handle: RePEc:eee:enepol:v:151:y:2021:i:c:s030142152100001x
    DOI: 10.1016/j.enpol.2021.112132
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    References listed on IDEAS

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    Cited by:

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    2. Emodi, Nnaemeka Vincent & Haruna, Emmanuel Umoru & Abdu, Nizam & Aldana Morataya, Sergio David & Dioha, Michael O. & Abraham-Dukuma, Magnus C., 2022. "Urban and rural household energy transition in Sub-Saharan Africa: Does spatial heterogeneity reveal the direction of the transition?," Energy Policy, Elsevier, vol. 168(C).
    3. Furszyfer Del Rio, Dylan D. & Sovacool, Benjamin K., 2023. "Of cooks, crooks and slum-dwellers: Exploring the lived experience of energy and mobility poverty in Mexico's informal settlements," World Development, Elsevier, vol. 161(C).
    4. Chen, Qiu & Huang, Jikun & Mirzabaev, Alisher, 2022. "Does fuel price subsidy work? Household energy transition under imperfect labor market in rural China," Energy Economics, Elsevier, vol. 107(C).
    5. Feindt, Simon & Kornek, Ulrike & Labeaga, José M. & Sterner, Thomas & Ward, Hauke, 2021. "Understanding regressivity: Challenges and opportunities of European carbon pricing," Energy Economics, Elsevier, vol. 103(C).
    6. Andr'es Ram'irez-Hassan & Alejandro L'opez-Vera, 2021. "Semi-parametric estimation of the EASI model: Welfare implications of taxes identifying clusters due to unobserved preference heterogeneity," Papers 2109.07646, arXiv.org.

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    More about this item

    Keywords

    QUAIDs; Energy price elasticities; Poverty;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D30 - Microeconomics - - Distribution - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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