A Semiparametric Analysis of Gasoline Demand in the United States Reexamining The Impact of Price
AbstractThe evaluation of the impact of an increase in gasoline tax on demand relies crucially on the estimate of the price elasticity. This article presents an extended application of the Partially Linear Additive Model (PLAM) to the analysis of gasoline demand using a panel of U.S. households, focusing mainly on the estimation of the price elasticity. Unlike previous semiparametric studies that use household-level data, we work with vehicle-level data within households that can potentially add richer details to the price variable. Both households and vehicles data are obtained from the Residential Transportation Energy Consumption Survey (RTECS) of 1991 and 1994, conducted by the U.S. Energy Information Administration (EIA). As expected, the derived vehicle-based gasoline price has significant dispersion across the country and across grades of gasoline. By using a PLAM specification for gasoline demand, we obtain a measure of gasoline price elasticity that circumvents the implausible price effects reported in earlier studies. In particular, our results show the price elasticity ranges between -0.2, at low prices, and -0.5, at high prices, suggesting that households might respond differently to price changes depending on the level of price. In addition, we estimate separately the model to households that buy only regular gasoline and those that buy also midgrade/premium gasoline. The results show that the price elasticities for these groups are increasing in price and that regular households are more price sensitive compared to nonregular.
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Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Econometric Reviews.
Volume (Year): 29 (2010)
Issue (Month): 4 ()
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Web page: http://taylorandfrancis.metapress.com/link.asp?target=journal&id=107830
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- Havranek, Tomas & Irsova, Zuzana & Janda, Karel, 2012.
"Demand for gasoline is more price-inelastic than commonly thought,"
Elsevier, vol. 34(1), pages 201-207.
- Havranek, Tomas & Irsova, Zuzana & Janda, Karel, 2011. "Demand for gasoline is more price-inelastic than commonly thought," CUDARE Working Paper Series 1118, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
- Havranek, Tomas & Irsova, Zuzana & Janda, Karel, 2011. "Demand for gasoline is more price-inelastic than commonly thought," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt0m94j50t, Department of Agricultural & Resource Economics, UC Berkeley.
- Tomáš Havránek & Zuzana Iršová & Karel Janda, 2011. "Demand for Gasoline Is More Price-Inelastic than Commonly Thought," Working Papers IES 2011/10, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Mar 2011.
- Marzoughi, Hassan & Kennedy, P. Lynn, . "The Impact of Ethanol Production on the U.S. Gasoline Market," 2012 Annual Meeting, February 4-7, 2012, Birmingham, Alabama 119752, Southern Agricultural Economics Association.
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