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

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Author Info
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)

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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.

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File URL: http://hdl.handle.net/2077/7411
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Publisher Info
Paper provided by Göteborg University, Department of Economics in its series Working Papers in Economics with number 274.

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Length: 9 pages
Date of creation: 15 Oct 2007
Date of revision:
Publication status: Forthcoming in Applied Economics Letters, 2008, pages xx.
Handle: RePEc:hhs:gunwpe:0274

Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, Göteborg University Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Related research
Keywords: climate change; simultaneous; tax;

Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters

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This page was last updated on 2009-12-9.

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