An Increasing Gasoline Price Elasticity in the United States?

30 Pages Posted: 6 Dec 2019

See all articles by Frank Goetzke

Frank Goetzke

University of Louisville - School of Urban & Public Affairs

Colin Vance

Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI)

Date Written: December 3, 2019

Abstract

Drawing on the 2009 and 2017 waves of the National Household Transportation Survey, this paper is concerned with modeling the fuel price elasticity, allowing for differential estimates in its magnitude over time and across households. We find a small but statistically significant mean elasticity of about -0.05 for the year 2009, which increases over fivefold to -0.26 by the year 2017. We explore the robustness of this result to different model specifications and estimation techniques, including instrumental variable estimation to account for the possible endogeneity of fuel prices, as well as quantile regression to account for heterogeneity according to driving intensity. While a similar pattern of substantially increasing elasticity emerges across all these models, the quantile model suggests an inverse relationship between the magnitude of the elasticity and miles driven in 2017. As demonstrated with a back of the envelope calculation, one implication of this pattern is a more muted effectiveness of fuel taxation than implied by the estimates of a standard mean regression.

Keywords: fuel price elasticity, vehicle miles traveled, heterogeneity

JEL Classification: D12, Q41, R48

Suggested Citation

Goetzke, Frank and Vance, Colin, An Increasing Gasoline Price Elasticity in the United States? (December 3, 2019). USAEE Working Paper No. 19-422. Available at SSRN: https://ssrn.com/abstract=3498379 or http://dx.doi.org/10.2139/ssrn.3498379

Frank Goetzke

University of Louisville - School of Urban & Public Affairs ( email )

426 West Bloom Street
Louisville, KY 40292
United States
(502) 852-8256 (Phone)

HOME PAGE: http://supa.louisville.edu/faculty/goetzke/profile_goetzke.htm

Colin Vance (Contact Author)

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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