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National gasoline and diesel demand elasticities and regional effects of carbon taxes in Sweden

Tafesse Tirkaso, Wondmagegn; Gren, Ing-Marie

Abstract

This study estimated national and regional-level gasoline and diesel demand elasticities in Sweden using county-level panel data obtained between 2001 and 2015, which were used to estimate regional effects of a cost effective achievement of the Swedish targets for CO2 emissions in the transport sector. The national-level elasticities were estimated by employing fixed effect (FE) and general method of moments (GMM) estimators, while county-level elasticities were calculated by considering the weight of each fuel type share at regional and national levels. Results from the national level indicated that per capita income, own and substitute prices, and per capita vehicle stocks were statistically significant in determining gasoline demand, while per capita income and own price were statistically significant in determining diesel demand. The calculated regional elasticities showed a variation between counties, with the highest being approximately 40 % higher than the lowest in absolute terms. A simulation of fuel taxes to achieve the Swedish 2030 emission target for the transport sector indicated considerable differences between counties in demand responses and private costs in relation to disposable income.

Keywords

fuel demand; carbon tax; elasticity; dynamic panel data; region; Sweden

Published in

Working Paper Series / Swedish University of Agricultural Sciences, Department of Economics
2019, number: 2019:02Publisher: Department of Economics, Swedish University of Agricultural Sciences