Fuel Demand Elasticities in Brazil: A Panel Data Analysis with Instrumental Variables

Authors

  • Frederico Uchôa Universidade Federal da Bahia
  • Cleiton Silva de Jesus Universidade Estadual de Feira de Santana
  • Leonardo Chaves Borges Cardoso Universidade Federal de Viçosa

Abstract

The aim of this paper is to provide demand elasticities for the three main fuels used in Brazil: gasoline, ethanol and diesel. We used a panel data approach at municipal level for the period between 2007 and 2016. The innovation in this study is in its introduction of a new instrumental variable for prices, combining three taxes and municipal distance from state capital. The main results are as follows: i) the gasoline, ethanol and diesel demands are price elastic, meaning that all own-price elasticities are greater than one; ii) ethanol consumption is more elastic when the CNG price is added as an explanatory variable, but this does not apply to gasoline; iii) an increase in GDP positively affects the demand for gasoline and diesel (less than proportionally), but does not affect demand for ethanol; iv) fleet size impacts the consumption of all fuels, except when the CNG price is excluded from the ethanol model; v) the ethanol-to-gasoline price ratio is a relevant variable for the demand of both gasoline and ethanol.Keywords: Fuel demand, Causal inference, Panel data analysis, price elasticity, cross price elasticity.JEL Classifications: C13, C26, L11, Q41, Q2.DOI: https://doi.org/10.32479/ijeep.8787

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Author Biographies

Frederico Uchôa, Universidade Federal da Bahia

Economics Department

Leonardo Chaves Borges Cardoso, Universidade Federal de Viçosa

Professor in the Rural Economics Department

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Published

2020-01-21

How to Cite

Uchôa, F., de Jesus, C. S., & Cardoso, L. C. B. (2020). Fuel Demand Elasticities in Brazil: A Panel Data Analysis with Instrumental Variables. International Journal of Energy Economics and Policy, 10(2), 450–457. Retrieved from https://econjournals.com/index.php/ijeep/article/view/8787

Issue

Vol. 10 No. 2 (2020)

Section

Articles

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