Are demand elasticities affected by politically determined tax levels?: simultaneous estimates of gasoline demand and price

Lennart Flood, Nizamul Islam and Thomas Sterner

No 274, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: Raising the price of fossil fuels is a key component of any effective policy to deal with climate change. Just how effective such policies are is decided by the price elasticities of demand. Many papers have studied this without recognising that not only is there a demand side response: quantities are decided by the price but also there is a reverse causality: the level of consumtion affects the political acceptability of the taxes which are the main component of the final price. Thus prices affect consumption levels, in turn, have an affect on taxes and thus consumer prices. This paper estimates these functions simultaneously to show that there is indeed an effect on the demand elasticity.

Keywords: climate change; simultaneous; tax (search for similar items in EconPapers)
JEL-codes: C33 Q54 (search for similar items in EconPapers)
Pages: 9 pages
Date: 2007-10-15
New Economics Papers: this item is included in nep-ene and nep-env
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Citations: View citations in EconPapers (2)

Forthcoming in Applied Economics Letters, 2008, pages xx.

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Journal Article: Are demand elasticities affected by politically determined tax levels? Simultaneous estimates of gasoline demand and price (2010)
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