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

  • 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.

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Metadaten
Author:John M. Coglianese, Lucas W. Davis, Lutz KilianGND, James H. Stock
URN:urn:nbn:de:hebis:30:3-370997
URL:http://ssrn.com/abstract=2571196
DOI:https://doi.org/10.2139/ssrn.2571196
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 503
Series (Serial Number):CFS working paper series (503)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Language:English
Year of Completion:2015
Year of first Publication:2015
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2015/03/10
Issue:February 15, 2015
Page Number:38
HeBIS-PPN:357671414
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht