Fuel Taxes versus Efficiency Standards – An Instrumental Variable Approach

25 Pages Posted: 9 Nov 2013

See all articles by Manuel Frondel

Manuel Frondel

RWI Leibniz Institute for Economic Research ; Ruhr University Bochum (RUB)

Colin Vance

Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI)

Date Written: October 8, 2013

Abstract

Using household travel diary data collected in Germany between 1997 and 2012, we employ an instrumental variable (IV) approach to estimate fuel price and efficiency elasticities. The aim is to gauge the relative impacts of fuel economy standards and fuel taxes on distance traveled. We find that the magnitudes of the elasticity estimates are statistically indistinguishable: higher fuel prices reduce driving by the same degree as higher fuel efficiency increases driving. This finding indicates an off setting effect of fuel efficiency standards on the effectiveness of fuel taxation, calling into question the efficacy of the European Commission’s current eff orts to legislate CO2 emissions limits for new cars given prevailing high fuel taxes.

Keywords: Automobile travel; panel estimation models; rebound effect

JEL Classification: D13, Q41

Suggested Citation

Frondel, Manuel and Vance, Colin, Fuel Taxes versus Efficiency Standards – An Instrumental Variable Approach (October 8, 2013). Ruhr Economic Paper No. 445. Available at SSRN: https://ssrn.com/abstract=2351755 or http://dx.doi.org/10.2139/ssrn.2351755

Manuel Frondel (Contact Author)

RWI Leibniz Institute for Economic Research ( email )

Hohenzollernstr. 1-3
45128 Essen
Germany

Ruhr University Bochum (RUB) ( email )

Universitätsstraße 150
Bochum, NRW 44780
Germany

Colin Vance

Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI) ( email )

Hohenzollernstr. 1-3
Essen, 45128
Germany
0049-201-8149-237 (Phone)

HOME PAGE: http://www.rwi-essen.de

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