The Price of Gasoline and New Vehicle Fuel Economy: Evidence from Monthly Sales Data

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Date

April 1, 2010

Authors

Thomas Klier and Joshua Linn

Publication

Journal Article

Reading time

1 minute

This paper uses a unique data set of monthly new vehicle sales by detailed model from 1970-2007, and implements a new identification strategy to estimate the effect of gasoline prices on new vehicle demand. We control for unobserved vehicle and consumer characteristics by using within model-year changes in gasoline prices and vehicle sales. We find a significant demand response, as nearly half of the decline in market share of U.S. manufacturers from 2002-2007 was due to the increase in gasoline prices. On the other hand, a gasoline tax increase would have a modest effect on average fuel efficiency.

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Topics

Authors

Thomas Klier

Joshua Linn

Senior Fellow

Josh Linn is a senior fellow at RFF. His research centers on the effects of environmental policies and economic incentives for new technologies in the transportation, electricity, and industrial sectors.

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