Anticipation, Tax Avoidance, and the Price Elasticity of Gasoline Demand

Arbeitspapier

Least-squares estimates of the response of gasoline consumption to a change in the gasoline price 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. Gasoline buyers increase purchases before tax increases and delay purchases before tax decreases, rendering the tax instrument endogenous. Including suitable leads and lags in the regression restores the validity of the IV estimator, resulting in much lower elasticity estimates.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CESifo Working Paper ; No. 5764

Klassifikation und Themen

• Klassifikation: Wirtschaft
• Thema: price elasticity of demand ; gasoline ; anticipation ; intertemporal substitution ; storage

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Coglianese, John ; Davis, Lucas W. ; Kilian, Lutz ; Stock, James H.
• Ereignis: Veröffentlichung
• (wer): Center for Economic Studies and ifo Institute (CESifo)
• (wo): Munich
• (wann): 2016

Weitere Informationen

• Handle: http://hdl.handle.net/10419/128467
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ