Short-run and long-run gasoline demand elasticities: a case study of Australia

Abstract

This study focuses on examining gasoline demand elasticities in Australia. The short-run and long-run elasticities are estimated based on the panel data from seven capital cities in Australia between 2010 (qua rter 3) and 2017 (quarter 4). The paper exploits single-equation panel data results, instrumental variable (IV) estimates, and distributed lag method to demonstrate the short-run and long-run effects of various factors on gasoline demand. We use the world crude oil price as an instrumental variable. The research results indicate short-run and long-run price elasticities of -0.11 and around -0.16 to -0.18, respectively. Although the conclusion is not able to be drawn about the long-run income elasticity of gasoline demand, the short-run finding of 1.35 shows that gasoline demand is income elastic. These findings indicate that the Australian government should increase the amount of gasoline stockpile and inform relevant tax policies on gasoline apart from emission taxes.