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Gasoline demand elasticities in the world’s energy gluttons: a time-varying coefficient approach

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Abstract

In this paper, we estimate the price and income elasticities for gasoline demand in selected energy gluttons—China, India, USA, Russia, and Japan. Specifically, we employ a time-varying parameter approach which adequately deals with potential parameter instabilities and nonlinearities and effectively captures price and income elasticity variations over time, with each time period having its own set of coefficients. Our empirical findings reveal the following: gasoline consumption is price-inelastic and income-inelastic, there are movements in both the price and income elasticities, and the movements generally correspond with business cycle patterns of each of the countries; overall, sensitivity to price and income changes increase during periods of economic crises. Constant elasticity models overestimate price and income elasticities, and income is predominantly more elastic than price. Our conclusion is that policy mechanisms that are price-based such as gasoline taxes are likely to be unsuccessful in achieving consumption-cum-pollution reduction objectives in the energy gluttons. Such policies may, however, be effective if they ensure that gasoline prices rise at a greater rate than income. Such policies may also be useful for revenue-raising purposes.

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Data availability

The datasets used and/or analyzed during the current study are available from the corresponding author on reasonable request.

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Funding

This study received funding from the Jiangxi Humanities and Social Sciences Project of University (No. JJ20125).

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Authors and Affiliations

  1. Research Center of the Central China for Economic and Social Development, Nanchang University, Nanchang, China

    Chien-Chiang Lee

  2. School of Economics and Management, Nanchang University, Nanchang, China

    Chien-Chiang Lee

  3. Nanchang Institute of Technology, Nanchang, China

    Godwin Olasehinde-Williams

  4. Department of Economics, Faculty of Social Sciences, University of Ilorin, Ilorin, Kwara State, Nigeria

    Godwin Olasehinde-Williams

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  1. Chien-Chiang Lee
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  2. Godwin Olasehinde-Williams
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Contributions

Chien-Chiang Lee: conceptualization, supervision, project administration, and resources.

Godwin Olasehinde-Williams: original draft, methodology, formal analysis, and software.

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Correspondence to Godwin Olasehinde-Williams.

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Lee, C., Olasehinde-Williams, G. Gasoline demand elasticities in the world’s energy gluttons: a time-varying coefficient approach. Environ Sci Pollut Res 28, 64830–64847 (2021). https://doi.org/10.1007/s11356-021-15615-6

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