Fuel Taxes versus Efficiency Standards – An Instrumental Variable Approach

Manuel Frondel and Colin Vance

No 445, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

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 fi nd 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 efforts to legislate CO2 emissions limits for new cars given prevailing high fuel taxes.

Keywords: automobile travel; panel estimation models; rebound effect (search for similar items in EconPapers)
JEL-codes: D13 Q41 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:445

DOI: 10.4419/86788502

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