NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Anticipation, Tax Avoidance, and the Price Elasticity of Gasoline Demand

John Coglianese, Lucas W. Davis, Lutz Kilian, James H. Stock

NBER Working Paper No. 20980
Issued in February 2015
NBER Program(s):Environment and Energy Economics

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.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20980

Users who downloaded this paper also downloaded* these:
Hughes, Knittel, and Sperling w12530 Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand
Levin, Lewis, and Wolak w22345 High Frequency Evidence on the Demand for Gasoline
Li, Linn, and Muehlegger w17891 Gasoline Taxes and Consumer Behavior
Borenstein and Davis w21437 The Distributional Effects of U.S. Clean Energy Tax Credits
Zidar w21035 Tax Cuts For Whom? Heterogeneous Effects of Income Tax Changes on Growth and Employment
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us