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Future Pain at the Diesel Pump? Potential Eff ects of the European Commission’s Energy Taxation Proposal

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  • Manuel Frondel
  • Colin Vance

    ()

Abstract

The Energy Tax Directive recently proposed by the European Commission envisages to tax fuels based on their energy content. By raising prices for diesel to a level higher than that of petrol, this proposal would eliminate the price advantage currently enjoyed by diesel in most EU Member States. To explore the implications of such a tax regime for automobile travel, the present analysis undertakes a comparative analysis of price elasticities for both fuel types. Drawing on household panel data from Germany, we fail to reject the hypothesis that the fuel price elasticities for petrol and diesel are equal. With our uniform fuel price elasticity estimates being on the order of -0.5 to -0.42, the typical fi nding from the empirical literature that the elasticities gleaned from household-level data are generally larger than those from aggregate time-series data is reconfirmed.

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Bibliographic Info

Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0280.

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Length: 25 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:rwi:repape:0280

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Keywords: Fuel taxation; fuel price elasticities; household data; automobile travel; panel;

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References

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  1. Daniel J. Graham & Stephen Glaister, 2002. "The Demand for Automobile Fuel: A Survey of Elasticities," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 36(1), pages 1-25, January.
  2. Manuel Frondel & Jorg Peters & Colin Vance, 2008. "Identifying the Rebound: Evidence from a German Household Panel," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 145-164.
  3. Binswanger, Mathias, 2001. "Technological progress and sustainable development: what about the rebound effect?," Ecological Economics, Elsevier, vol. 36(1), pages 119-132, January.
  4. Manuel Frondel & Colin Vance, 2010. "Fixed, Random, or Something in Between? – A Variant of HAUSMAN’s Specifi cation Test for Panel Data Estimators," Ruhr Economic Papers 0160, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  5. Dahl, Carol & Sterner, Thomas, 1991. "Analysing gasoline demand elasticities: a survey," Energy Economics, Elsevier, vol. 13(3), pages 203-210, July.
  6. Sterner, Thomas, 2007. "Fuel taxes: An important instrument for climate policy," Energy Policy, Elsevier, vol. 35(6), pages 3194-3202, June.
  7. Frondel, Manuel & Schmidt, Christoph M. & Vance, Colin, 2011. "A regression on climate policy: The European Commission’s legislation to reduce CO2 emissions from automobiles," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(10), pages 1043-1051.
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