Salience of Carbon Taxes in the Gasoline Market

33 Pages Posted: 18 Aug 2012 Last revised: 24 Jan 2015

Nicholas Rivers

University of Ottawa - Graduate School of Public and International Affairs

Brandon Schaufele

University of Western Ontario - Richard Ivey School of Business

Date Written: October 22, 2014

Abstract

We demonstrate that the carbon tax imposed by the Canadian province of British Columbia 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. 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 market-determined price.

Keywords: Carbon tax, tax salience, instrumental variables, environmental pricing, gasoline demand

JEL Classification: C26, H23, H29, Q41, Q58

Suggested Citation

Rivers, Nicholas and Schaufele, Brandon, Salience of Carbon Taxes in the Gasoline Market (October 22, 2014). Available at SSRN: https://ssrn.com/abstract=2131468 or http://dx.doi.org/10.2139/ssrn.2131468

Nicholas Rivers

University of Ottawa - Graduate School of Public and International Affairs ( email )

75 Laurier Avenue East
Ottawa, Ontario K1N 6N5
Canada

Brandon Schaufele (Contact Author)

University of Western Ontario - Richard Ivey School of Business ( email )

1151 Richmond Street North
London, Ontario N6A 3K7
Canada

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