Aklilu, Abenezer Zeleke
- Department of Economics, Swedish University of Agricultural Sciences
Abstract
Methodologically consistent demand estimates are necessary to analyze and forecast the effect of a common fuel policy across the EU-28. This study estimates short-run and long-run price and income elasticities for gasoline and diesel demands using the ARDL Bounds approach that also tests the existence of a long-run relationship using data from 1978 to 2013. The results show that elasticity estimates between the EU-28 countries vary and the estimated long-run elasticities are higher than their short-run counterparts, which is in line with expectations based on the existing literature. The short-run and long-run income elasticities of gasoline and diesel demand are found to be more elastic than their price equivalents implying that if a charge on fuel is designed to decrease emissions by increasing the price, the charge needs to rise at a higher rate than income. An analysis of the EU's 2030 emission and fuel consumption reduction targets using the estimated long-run elasticities shows that, with the current tax scheme, it cannot be guaranteed that emission targets will be achieved and thus a more stringent fuel tax policy is essential.
Keywords
Gasoline demand; Diesel demand; Price elasticity; Income elasticity; ARDL bounds; The EU-28 2030 emissions policy; Fuel tax
Published in
Renewable and Sustainable Energy Reviews
2020, volume: 118, article number: 109530
Publisher: PERGAMON-ELSEVIER SCIENCE LTD
SLU Authors
UKÄ Subject classification
Economics
Economics
Publication identifier
- DOI: https://doi.org/10.1016/j.rser.2019.109530
Permanent link to this page (URI)
https://res.slu.se/id/publ/103302