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Are demand elasticities affected by politically determined tax levels? : simultaneous estimates of gasoline demand and price

Author

Listed:
  • Flood, Lennart

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Islam, Nizamul

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Sterner, Thomas

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

Raising the price of fossil fuels is a key component of any effective policy to deal with climate change. Just how effective such policies are is decided by the price elasticities of demand. Many papers have studied this without recognising that not only is there a demand side response: quantities are decided by the price but also there is a reverse causality: the level of consumtion affects the political acceptability of the taxes which are the main component of the final price. Thus prices affect consumption levels, in turn, have an affect on taxes and thus consumer prices. This paper estimates these functions simultaneously to show that there is indeed an effect on the demand elasticity.

Suggested Citation

  • Flood, Lennart & Islam, Nizamul & Sterner, Thomas, 2007. "Are demand elasticities affected by politically determined tax levels? : simultaneous estimates of gasoline demand and price," Working Papers in Economics 274, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0274
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    File URL: http://hdl.handle.net/2077/7411
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    References listed on IDEAS

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    1. Sterner, Thomas, 2007. "Fuel taxes: An important instrument for climate policy," Energy Policy, Elsevier, vol. 35(6), pages 3194-3202, June.
    2. Daniel J. Graham & Stephen Glaister, 2002. "The Demand for Automobile Fuel: A Survey of Elasticities," Journal of Transport Economics and Policy, University of Bath, vol. 36(1), pages 1-25, January.
    3. Henrik Hammar, Asa Lofgren and Thomas Sterner, 2004. "Political Economy Obstacles to Fuel Taxation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 1-18.
    4. Leonardo J. Basso & Tae Hoon Oum, 2006. "Automobile Fuel Demand: A Critical Assessment of Empirical Methodologies," Transport Reviews, Taylor & Francis Journals, vol. 27(4), pages 449-484, November.
    5. Drollas, Leonidas P., 1984. "The demand for gasoline : Further evidence," Energy Economics, Elsevier, vol. 6(1), pages 71-82, January.
    6. Fredriksson, Per G., 1997. "The Political Economy of Pollution Taxes in a Small Open Economy," Journal of Environmental Economics and Management, Elsevier, vol. 33(1), pages 44-58, May.
    7. Dahl, Carol & Sterner, Thomas, 1991. "Analysing gasoline demand elasticities: a survey," Energy Economics, Elsevier, vol. 13(3), pages 203-210, July.
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    Cited by:

    1. Ryan Rafaty & Geoffroy Dolphin & Felix Pretis, 2020. "Carbon pricing and the elasticity of CO2 emissions," Working Papers EPRG2035, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Raymond Li & Guy C.K. Leung, 2012. "Gasoline consumption in China: a dynamic panel data analysis," Economics Bulletin, AccessEcon, vol. 32(3), pages 2375-2382.
    3. Galindo, Luis Miguel & Samaniego, Joseluis & Ferrer, Jimy & Alatorre, José Eduardo & Reyes, Orlando, 2016. "Cambio climático, políticas públicas y demanda de energía y gasolinas en América Latina: un meta-análisis," Documentos de Proyectos 40841, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    4. Hu, Wenhao & Ho, Mun S. & Cao, Jing, 2019. "Energy consumption of urban households in China," China Economic Review, Elsevier, vol. 58(C).
    5. Jens Ewald & Thomas Sterner & Eoin Ó Broin & Érika Mata, 2021. "Saving energy in residential buildings: the role of energy pricing," Climatic Change, Springer, vol. 167(1), pages 1-20, July.

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    More about this item

    Keywords

    climate change; simultaneous; tax;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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