Modelling fuel demand for different socio-economic groups

The fuel demand literature provides a range of estimates of the long and short-run price and income elasticities of gasoline demand for different countries and states. These estimates can be very useful in predicting the overall impacts of policy approaches designed to reduce fuel consumption and to address concerns of carbon emissions or energy security. However, analysis of policy options based on elasticities that are homogenous across income groups provides no information about the relative distributional burden that may be faced by different sectors of the population. Different responses to the same change in price or income are likely to occur, dependent on both travel needs and income levels. This paper estimates gasoline demand elasticities for different income quintiles in the United States to test for heterogeneity in demand response. Group wise summary consumer expenditure data for 20 years is used to derive the elasticity estimates. The results show that the elasticities do vary across groups and follow a U-pattern from the lowest to the highest income quintile. The lowest income quintile is found to have the largest price elasticity. The lowest and the highest income quintiles appear to be statistically insensitive to any changes in income. The rebound effect also follows the U-pattern, with the highest rebound observed among the wealthiest households. Rural households appear to have lower price elasticity than households in urban areas.