Fuel Demand Elasticities in Brazil: A Panel Data Analysis with Instrumental Variables

Frederico Uch A, Cleiton Silva de Jesus and Leonardo Cardoso ()
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Frederico Uch A: Department of Economics, Universidade Federal da Bahia, Brazil,
Cleiton Silva de Jesus: Universidade Estadual de Feira de Santana, Brazil,

International Journal of Energy Economics and Policy, 2020, vol. 10, issue 2, 450-457

Abstract: The aim of this paper is to provide demand elasticities for the three main fuels used in Brazil: gasoline, ethanol and diesel. We used a panel data approach at municipal level for the period between 2007 and 2016. The innovation in this study is in its introduction of a new instrumental variable for prices, combining three taxes and municipal distance from state capital. The main results are as follows: i) the gasoline, ethanol and diesel demands are price elastic, meaning that all own-price elasticities are greater than one; ii) ethanol consumption is more elastic when the CNG price is added as an explanatory variable, but this does not apply to gasoline; iii) an increase in GDP positively affects the demand for gasoline and diesel (less than proportionally), but does not affect demand for ethanol; iv) fleet size impacts the consumption of all fuels, except when the CNG price is excluded from the ethanol model; v) the ethanol-to-gasoline price ratio is a relevant variable for the demand of both gasoline and ethanol.

Keywords: Fuel demand; Causal inference; Panel data analysis; price elasticity; cross price elasticity. (search for similar items in EconPapers)
JEL-codes: C13 C26 L11 Q2 Q41 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eco:journ2:2020-02-52

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