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Identifying the elasticity of driving: Evidence from a gasoline price shock in California

Kenneth Gillingham ()

Regional Science and Urban Economics, 2014, vol. 47, issue C, 13-24

Abstract: There have been dramatic swings in retail gasoline prices over the past decade, along with reports in the media of consumers changing their driving habits — providing a unique opportunity to examine how consumers respond to changes in gasoline prices. This paper exploits a unique and extremely rich vehicle-level dataset of all new vehicles registered in California in 2001–2003 and then subsequently given a smog check in 2005–2009, a period of steady economic growth but rapidly increasing gasoline prices after 2005. The primary empirical result is a medium-run estimate of the elasticity of vehicle-miles-traveled with respect to gasoline price for new vehicles of −0.22. There is evidence of considerable heterogeneity in this elasticity across buyer types, demographics, and geography. Surprisingly, the vehicle-level responsiveness is increasing with income, perhaps due to within-household switching of vehicles. The estimated elasticity has important implications for the effectiveness of price policies, such as increased gasoline taxes or a carbon policy, in reducing greenhouse gases. The heterogeneity in the elasticity underscores differing distributional and local air pollution benefits of policies that increase the price of gasoline.

Keywords: Urban transportation; Heterogeneity; Vehicles; Gasoline taxes (search for similar items in EconPapers)
JEL-codes: R2 R4 Q4 Q5 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.regsciurbeco.2013.08.004

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