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Estimating the elasticities of gasoline demand: an instrumental variable approach

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  • Weiwei Liu

Abstract

This article uses a new identification strategy to estimate the demand for gasoline. I show that the monthly gasoline price is endogenous to gasoline demand at the state level, and that gasoline tax and domestic oil first purchasing price together are strong and valid instruments to correct for the endogeneity bias. In addition to estimating the price elasticity, this article also provides an estimate of the income elasticity. These updated estimates are critical factors in evaluating the environmental effect of gasoline tax and forecasting gasoline consumption.

Suggested Citation

  • Weiwei Liu, 2016. "Estimating the elasticities of gasoline demand: an instrumental variable approach," Applied Economics Letters, Taylor & Francis Journals, vol. 23(16), pages 1153-1156, November.
    • Handle: RePEc:taf:apeclt:v:23:y:2016:i:16:p:1153-1156
    DOI: 10.1080/13504851.2016.1139671
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    Cited by:

    1. Goetzke, Frank & Vance, Colin, 2021. "An increasing gasoline price elasticity in the United States?," Energy Economics, Elsevier, vol. 95(C).
    2. Seul-Ye Lim & Jeoung-Sik Min & Seung-Hoon Yoo, 2021. "Price and Income Elasticities of Residential Heat Demand from District Heating System: A Price Sensitivity Measurement Experiment in South Korea," Sustainability, MDPI, vol. 13(13), pages 1-10, June.
    3. Goetzke, Frank & Vance, Colin, 2018. "Is gasoline price elasticity in the United States increasing? Evidence from the 2009 and 2017 national household travel surveys," Ruhr Economic Papers 765, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    4. Ghoddusi, Hamed & Morovati, Mohammad & Rafizadeh, Nima, 2019. "Foreign Exchange Shocks and Gasoline Consumption," Energy Economics, Elsevier, vol. 84(C).

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