EconPapers    
Economics at your fingertips  
 

Anticipation, tax avoidance, and the price elasticity of gasoline demand

John Coglianese, Lucas Davis (), Lutz Kilian () and James H. Stock

No 503, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: Traditional least squares estimates of the responsiveness of gasoline consumption to changes in gasoline prices are biased toward zero, given the endogeneity of gasoline prices. A seemingly natural solution to this problem is to instrument for gasoline prices using gasoline taxes, but this approach tends to yield implausibly large price elasticities. We demonstrate that anticipatory behavior provides an important explanation for this result. We provide evidence that gasoline buyers increase gasoline purchases before tax increases and delay gasoline purchases before tax decreases. This intertemporal substitution renders the tax instrument endogenous, invalidating conventional IV analysis. We show that including suitable leads and lags in the regression restores the validity of the IV estimator, resulting in much lower and more plausible elasticity estimates. Our analysis has implications more broadly for the IV analysis of markets in which buyers may store purchases for future consumption.

New Economics Papers: this item is included in nep-ene
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/107682/1/81907974X.pdf (application/pdf)

Related works:
Journal Article: Anticipation, Tax Avoidance, and the Price Elasticity of Gasoline Demand (2017) Downloads
Working Paper: Anticipation, Tax Avoidance, and the Price Elasticity of Gasoline Demand (2016) Downloads
Working Paper: Anticipation, Tax Avoidance, and the Price Elasticity of Gasoline Demand (2015) Downloads
Working Paper: Anticipation, Tax Avoidance, and the Price Elasticity of Gasoline Demand (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:503

Access Statistics for this paper

More papers in CFS Working Paper Series from Center for Financial Studies (CFS) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().

 
Page updated 2019-04-16
Handle: RePEc:zbw:cfswop:503