Long-run demand elasticities for gasoline

Abstract

INTRODUCTION The purpose of this chapter is to discuss long-run elasticities of demand for gasoline in OECD countries. In so doing a number of alternative modelling strategies will be compared. The results can be understood as a further illustration of some of the methodological results on the inherent differences between various estimators analysed by Pesaran and Smith in Chapter 2. There are several reasons for choosing to model gasoline demand:• Economically the most important petroleum products are the transport fuels. On the international scene these are the subject of two distinct but interconnected debates. On the one hand, there is the inevitable conflict between producers and consumers over prices. On the other hand there is the fact that increased transportation of goods and passengers causes various environmental problems, ranging from local congestion, noise and smog to global warming due to carbon (and other) emissions. Numerous technical, institutional and legal mechanisms are currently being assessed for their ability to mitigate such problems. For the economist the most natural approach is, presumably, to use the price mechanism in one form or another-be it through carbon taxes, road or zone fees, other special charges or simply gasoline taxes. On the issue of gasoline taxation and pricing in various countries, see Angelier and Sterner (1990) and Sterner (1989a, b). In the context of these debates, policy-makers in both producing and consuming countries have an obvious interest in obtaining good estimates of the elasticity of gasoline demand.