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What do one hundred million transactions tell us about demand elasticity of gasoline?

Mohammad Hossein Rahmati, Amirhossein Tavakoli and Mohammad Vesal ()

MPRA Paper from University Library of Munich, Germany

Abstract: The price elasticity of gasoline demand is a key parameter in evaluation of various policy options. However, most of the literature uses aggregate data to identify this elasticity. Temporal and spatial aggregation make elasticity estimates unreliable. We employ a unique dataset of all gasoline transactions in Iran during a four-month period around an unexpected exogenous price change to identify price elasticity. After controlling for date and individual fixed effects we estimate a robust significant price elasticity of -0.077. Aggregation of the same data by week, month, and city yields an estimate of -0.3 indicating a significant bias in earlier studies. We also identify a significant withholding behavior by consumers in response to anticipated price changes.

Keywords: Gasoline demand elasticity; Transaction-level data; Withholding behavior; Subsidy (search for similar items in EconPapers)
JEL-codes: C55 D12 Q31 (search for similar items in EconPapers)
Date: 2019-03
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