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Carbon Tax Salience and Gasoline Demand

Author

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  • Nicholas Rivers

    () (Graduate School of Public and International Affairs, University of Ottawa, 120 University St., Ottawa,Ontario)

  • Brandon Schaufele

    () (Department of Economics, University of Ottawa, 120 University St., Ottawa,Ontario)

Abstract

We demonstrate that the carbon tax imposed by the Canadian province of British Columbia, a unique carbon pricing policy that comprehensively applies to all fossil fuels, caused a decline in short-run gasoline demand that is significantly greater than would be expected from an equivalent increase in the market price of gasoline. That the carbon tax is more salient, or yields a larger change in demand than equivalent market price movements, is robust to a range of specifications including intuitively plausible and strong instrumental variables. Along with calculating the reduction in carbon dioxide emissions attributable to the tax, we discuss potential explanations for the differential consumer responses to the carbon tax relative to the marketdetermined price.

Suggested Citation

  • Nicholas Rivers & Brandon Schaufele, 2012. "Carbon Tax Salience and Gasoline Demand," Working Papers 1211E, University of Ottawa, Department of Economics.
  • Handle: RePEc:ott:wpaper:1211e
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    File URL: http://sciencessociales.uottawa.ca/economics/sites/socialsciences.uottawa.ca.economics/files/1211e.pdf
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    References listed on IDEAS

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    1. Marion, Justin & Muehlegger, Erich, 2011. "Fuel tax incidence and supply conditions," Journal of Public Economics, Elsevier, pages 1202-1212.
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    5. Shanjun Li & Joshua Linn & Erich Muehlegger, 2014. "Gasoline Taxes and Consumer Behavior," American Economic Journal: Economic Policy, American Economic Association, pages 302-342.
    6. Chandra, Ambarish & Gulati, Sumeet & Kandlikar, Milind, 2010. "Green drivers or free riders? An analysis of tax rebates for hybrid vehicles," Journal of Environmental Economics and Management, Elsevier, vol. 60(2), pages 78-93, September.
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    Citations

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    Cited by:

    1. John Coglianese & Lucas W. Davis & Lutz Kilian & James H. Stock, 2017. "Anticipation, Tax Avoidance, and the Price Elasticity of Gasoline Demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(1), pages 1-15, January.
    2. Shanjun Li & Joshua Linn & Erich Muehlegger, 2014. "Gasoline Taxes and Consumer Behavior," American Economic Journal: Economic Policy, American Economic Association, pages 302-342.
    3. Tracy Snoddon, 2015. "Prospects for Integrated Carbon Taxes in Canada: Lessons from Federal-Provincial Tax Coordination," LCERPA Working Papers 0091, Laurier Centre for Economic Research and Policy Analysis, revised 08 May 2015.
    4. Bajo-Buenestado, Raúl, 2016. "Evidence of asymmetric behavioral responses to changes in gasoline prices and taxes for different fuel types," Energy Policy, Elsevier, vol. 96(C), pages 119-130.
    5. Murray, Brian & Rivers, Nicholas, 2015. "British Columbia’s revenue-neutral carbon tax: A review of the latest “grand experiment” in environmental policy," Energy Policy, Elsevier, vol. 86(C), pages 674-683.
    6. Paul Ekins & Stefan Speck, 2014. "The fiscal implications of climate change and policy responses," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 19(3), pages 355-374, March.
    7. Scott, K. Rebecca, 2015. "Demand and price uncertainty: Rational habits in international gasoline demand," Energy, Elsevier, pages 40-49.
    8. Ekaterina Rhodes & Mark Jaccard, 2013. "A Tale of Two Climate Policies: Political Economy of British Columbia's Carbon Tax and Clean Electricity Standard," Canadian Public Policy, University of Toronto Press, vol. 39(s2), pages 37-52, August.

    More about this item

    Keywords

    Carbon tax; tax salience; instrumental variables; environmental pricing; gasoline demand.;

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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