Gasoline Demand with Heterogeneity in Household Responses.

Fuel demand elasticities are typically based on aggregate data to determine consumer responses to tax increases or price shocks. However, this fails to capture the detailed distributional effect on different socio-economic groups, which is often needed to fully understand the impact of fuel tax measures. This paper presents results from a household level gasoline demand model which accommodates variation in price and income elasticity with increasing income as well as for different socio-economic groups. The paper finds substantial heterogeneity in price and income elasticities based on demographic groupings and income groups.