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Do gasoline prices converge in a unified Europe with non-harmonized tax rates?

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  • Axel Dreher
  • Tim Krieger

Abstract

The paper presents univariate and panel unit root tests for gasoline and oil price convergence over the last decade. We test for the absolute versus relative version of the LOOP and estimate the speed of convergence as well as its development over time. Our results show that the absolute version of the LOOP cannot be supported. Constant price differences between countries remain, caused mainly by existing tax differences. The relative version of the LOOP is strongly supported by the data. The speed of convergence increased over time, but differs for gross and net-of-tax prices. We can show that national tax policy by EU member states is not (yet) threatened by arbitrage due to cross-border shopping.

Suggested Citation

  • Axel Dreher & Tim Krieger, 2005. "Do gasoline prices converge in a unified Europe with non-harmonized tax rates?," KOF Working papers 05-114, KOF Swiss Economic Institute, ETH Zurich.
    • Handle: RePEc:kof:wpskof:05-114
    DOI: 10.3929/ethz-a-005104870
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    Cited by:

    1. Sonali DAS , Rangan GUPTA & Patrick A. KAYA, 2010. "Convergence Of Metropolitan House Prices In South Africa: A Re-Examination Using Efficient Unit Root Tests," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(1).
    2. Aye, G.C. & Goswami, S. & Gupta, R., 2013. "Metropolitan House Prices In Regions of India: Do They Converge?," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 13(1), pages 135-144.
    3. Goodness C. Aye & Samrat Goswami & Rangan Gupta, 2012. "Metropolitan House Prices In India: Do They Converge?," Working Papers 201220, University of Pretoria, Department of Economics.
    4. Philippe Burger & Lizelle Janse Van Rensburg, 2008. "Metropolitan House Prices In South Africa: Do They Converge?," South African Journal of Economics, Economic Society of South Africa, vol. 76(2), pages 291-297, June.
    5. Holmes, Mark J. & Otero, Jesús & Panagiotidis, Theodore, 2013. "On the dynamics of gasoline market integration in the United States: Evidence from a pair-wise approach," Energy Economics, Elsevier, vol. 36(C), pages 503-510.
    6. Matthew A. Shapiro & Han Woo Park, 2012. "Regional development in South Korea: accounting for research area in centrality and networks," Scientometrics, Springer;Akadémiai Kiadó, vol. 90(1), pages 271-287, January.
    7. Willem H. Boshoff, 2007. "Stationarity Tests In Geographic Markets: An Application To South African Milk Markets," South African Journal of Economics, Economic Society of South Africa, vol. 75(1), pages 52-65, March.
    8. Suvankulov, Farrukh & Lau, Marco Chi Keung & Ogucu, Fatma, 2012. "Price regulation and relative price convergence: Evidence from the retail gasoline market in Canada," Energy Policy, Elsevier, vol. 40(C), pages 325-334.

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    More about this item

    Keywords

    price convergence; law of one price; gasoline; international taxation; European integration; panel unit roots;
    All these keywords.

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • F15 - International Economics - - Trade - - - Economic Integration

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