Gasoline Demand Elasticities at the Backdrop of Lower Oil Prices: Fuel-Subsidizing Country Case

Jeyhun I. Mikayilov, Shahriyar Mukhtarov () and Jeyhun Mammadov
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Jeyhun I. Mikayilov: King Abdullah Petroleum Studies and Research Center, P.O. Box 88550, Riyadh 11672, Saudi Arabia
Jeyhun Mammadov: Department of Economics and Management, Khazar University, 41 Mehseti Str., Baku AZ1096, Azerbaijan

Energies, 2020, vol. 13, issue 24, 1-18

Abstract: This study investigates the income and price elasticities of gasoline demand for a fuel subsidizing country case, applying three different time-varying coefficient approaches to the data spanning the period from January 2002 to June 2018. The empirical estimations concluded a cointegration relationship between gasoline demand, income, and gasoline price. The income elasticity found ranges from 0.10 to 0.29, while the price elasticity remains constant over time, being −0.15. Income elasticity increases over time, slightly decreasing close to the end of the period, which is specific for a developing country. In the short run, gasoline demand does not respond to the changes in income and price. The policy implications are discussed based on the findings of the study. Research results show that since the income elasticity of demand is not constant, the use of constant elasticities obtained in previous studies might be misleading for policymaking purposes. An increase in income elasticity might be the cause of the inefficiency of the existing vehicles. The small price elasticity allows to say that if policy makers plan to reduce gasoline consumption then increasing its price would not substantially reduce the consumption. The current situation can be utilized to increase energy efficiency and implement eco-friendly technologies. For this purpose, the quality of existing transport modes can be improved. Meanwhile, to meet households’ needs, policies such as providing soft auto loans need to be formed to balance the recent drop in car sales.

Keywords: gasoline demand modeling; time-varying income and price elasticities; oil-prices; Azerbaijan; MIS; STSM (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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