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Is the price effect on fuel consumption symmetric ? Some evidence from an empirical study.

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Abstract

We generally consider that the price elasticity of the energy demand is quite small. But it appears that strong increases in gasoline price lead to modifications in consumer behaviours. The high volatility of petroleum prices and thus gasoline prices and the strong increases since the beginning of 2000 justify an analysis of price effects on gasoline consumption. Thus, in this paper, we estimate the effects of price variations on gasoline consumption, in the short and the long-term, in two countries: the United States and India. We use a co-integration modelling to test for long-run relationship between gasoline consumption, income, price and vehicle ownership in the two countries. We use an error correction model to test for short-run prices effects and more precisely for asymmetric effects on demand of increases and decreases in gasoline prices. The main conclusions are the following. - The United States: (1) The long-term price elasticity is relatively high for an industrialised country because gasoline taxes are low (2) Households are more sensitive to a price increase than a price decrease. - India: (1) Price elasticity in the long-run is quite high but is quite small in the short – run. It is not surprising for an emergent country (2) It seems that there is no asymmetric effect of price variations on gasoline consumption.
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hal-02469516 , version 1 (06-02-2020)

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  • HAL Id : hal-02469516 , version 1

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Elodie Sentenac-Chemin. Is the price effect on fuel consumption symmetric ? Some evidence from an empirical study.: Cahiers de l'Economie, Série Recherche, n° 73. 2009. ⟨hal-02469516⟩
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