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The Heterogeneous Effects of Gasoline Taxes: Why Where We Live Matters

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  • Spiller, Elisheba

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    (Resources for the Future)

  • Stephens, Heather M.
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    Abstract

    Using disaggregated confidential household data, we estimate spatial variation in household-level gasoline price elasticities and the welfare effects of gasoline taxes. A novel approach allows us to model a discrete-continuous household choice of vehicle bundles, while disaggregating the choice set and including vehicle-specific fixed effects and unobserved consumer heterogeneity. The mean elasticity of demand for gasoline is -0.67, but with tremendous variation across location and income. We find that rural households have 30 percent more negative welfare impacts than urban households from gasoline taxes. Finally, we explore different policies that can help to mitigate welfare inequalities due to these taxes.

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    File URL: http://www.rff.org/RFF/documents/RFF-DP-12-30.pdf
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    Bibliographic Info

    Paper provided by Resources For the Future in its series Discussion Papers with number dp-12-30.

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    Date of creation: 18 Jul 2012
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    Handle: RePEc:rff:dpaper:dp-12-30

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    Keywords: gasoline taxes; welfare; elasticity; rural; commuting; transportation;

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    1. Storchmann, Karl, 2005. "Long-Run Gasoline demand for passenger cars: the role of income distribution," Energy Economics, Elsevier, vol. 27(1), pages 25-58, January.
    2. Mark Ferguson & Kamar Ali & M. Rose Olfert & Mark Partridge, 2007. "Voting with Their Feet: Jobs versus Amenities," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 38(1), pages 77-110.
    3. Sarah E. West & Roberton C. Williams III, 2002. "Estimates from a Consumer Demand System: Implications for the Incidence of Environmental Taxes," NBER Working Papers 9152, National Bureau of Economic Research, Inc.
    4. Ye Feng & Don Fullerton & Li Gan, 2005. "Vehicle Choices, Miles Driven, and Pollution Policies," NBER Working Papers 11553, National Bureau of Economic Research, Inc.
    5. Bento, Antonio M. & Goulder, Lawrence H. & Jacobsen, Mark R. & von Haefen, Roger H., 2007. "Distributional and Efficiency Impacts of Increased U.S. Gasoline Taxes," Working Papers 127021, Cornell University, Department of Applied Economics and Management.
    6. Mark D. Partridge & Kamar Ali & M. Rose Olfert, 2010. "Rural-to-Urban Commuting: Three Degrees of Integration," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 41(2), pages 303-335.
    7. Amil Petrin, 2001. "Quantifying the Benefits of New Products: The Case of the Minivan," NBER Working Papers 8227, National Bureau of Economic Research, Inc.
    8. West, Sarah E., 2004. "Distributional effects of alternative vehicle pollution control policies," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 735-757, March.
    9. Zia Wadud & Daniel J. Graham & Robert B. Noland, 2010. "Gasoline Demand with Heterogeneity in Household Responses," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 47-74.
    10. Mark D. Partridge & Dan S. Rickman & Kamar Ali & M. Rose Olfert, 2008. "The Geographic Diversity of U.S. Nonmetropolitan Growth Dynamics: A Geographically Weighted Regression Approach," Land Economics, University of Wisconsin Press, vol. 84(2), pages 241-266.
    11. Manski, Charles F., 1975. "Maximum score estimation of the stochastic utility model of choice," Journal of Econometrics, Elsevier, vol. 3(3), pages 205-228, August.
    12. Thomas Klier & Joshua Linn, 2010. "The Price of Gasoline and New Vehicle Fuel Economy: Evidence from Monthly Sales Data," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 134-53, August.
    13. Kayser, Hilke A., 2000. "Gasoline demand and car choice: estimating gasoline demand using household information," Energy Economics, Elsevier, vol. 22(3), pages 331-348, June.
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    Cited by:
    1. Antonio M. Bento & Jonathan E. Hughes & Daniel T. Kaffine, 2012. "Carpooling and Driver Responses to Fuel Price Changes: Evidence from Traffic Flows in Los Angeles," Working Papers 2012-06, Colorado School of Mines, Division of Economics and Business.
    2. Madowitz, M. & Novan, K., 2013. "Gasoline taxes and revenue volatility: An application to California," Energy Policy, Elsevier, vol. 59(C), pages 663-673.

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