Your mileage may vary: Have road-fuel demand elasticities changed over time in middle-income countries?

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Your mileage may vary: Have road-fuel demand elasticities changed over time in middle-income countries?

Liddle, Brantley / Hasanov, Fakhri J. / Parker, Steven

Highlights • Temporal dynamics of middle-income road-fuel demand elasticities are analyzed. • Temporal heterogeneity is less than cross-sectional heterogeneity. • Average income elasticity between 1 and 0.8 and average price elasticity near −0.2 always. • No statistically significant evidence demand became saturated or consumers less price sensitive.

Abstract This paper determines whether road-fuel (gasoline plus diesel) income and price elasticities have changed over time in middle-income countries. To do so, the paper considers a balanced panel of 26 countries that spans 1990–2019. Also, the paper employs two methods that fully allow for cross-sectional heterogeneity, but vary to the extent that they allow for temporal heterogeneity: rolling window, mean group regressions and mean observation OLS, which estimates coefficients for each cross-section and each time period. While the elasticities demonstrate some temporal heterogeneity, such variances are less pronounced than the corresponding country-level heterogeneity. At any point in time, for middle-income countries, the average road-fuel income elasticity is between 1 and 0.8, and the average road-fuel price elasticity is very near −0.2. Lastly, we find no strong evidence that road-fuel demand has become saturated or that efficiency improvements have made consumers less price sensitive in middle-income countries.