Economic Crisis and Elasticities of Car Fuels: Evidence for Spain

This paper provides an updated calculation of the price and income responsiveness of Spanish consumers of car fuels, with an explicit exploration of the effects of the current economic crisis. We examine separate gasoline and diesel demand models using a set of estimators, including generalized method of moments and bias-corrected dynamic fixed-effect models, on a panel of 16 Spanish regions over the 1999-2011 period. The paper confirms the persistence of rather low own-price elasticities both for diesel and gasoline and both in short and long runs. It also shows that the crisis has slightly increased the price elasticity of demand, with a higher effect on gasoline than on diesel. On the contrary, the crisis has hardly affected the income elasticity of car-fuel demand. These updated results are obviously relevant for the current Spanish debate on the design and implementation of energy, environmental, fiscal and distributional policies. Moreover, given the duration and extent of the Spanish economic crisis, our conclusions may be also interesting and useful from an international perspective.