Working Papers in Economics
Are demand elasticities affected by politically determined tax levels? : simultaneous estimates of gasoline demand and price
(), Nizamul Islam
() and Thomas Sterner
Abstract: Raising the price of fossil fuels is a key component of
any effective policy to deal with climate change. Just how effective such
policies are is decided by the price elasticities of demand. Many papers
have studied this without recognising that not only is there a demand side
response: quantities are decided by the price but also there is a reverse
causality: the level of consumtion affects the political acceptability of
the taxes which are the main component of the final price. Thus prices
affect consumption levels, in turn, have an affect on taxes and thus
consumer prices. This paper estimates these functions simultaneously to
show that there is indeed an effect on the demand elasticity.
Keywords: climate change; simultaneous; tax; (follow links to similar papers)
JEL-Codes: C33; Q54; (follow links to similar papers)
9 pages, October 15, 2007
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- This paper is forthcoming as:
Flood, Lennart, Nizamul Islam and Thomas Sterner, 'Are demand elasticities affected by politically determined tax levels?', Applied Economics Letters.
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