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