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Transportation
Published in: Transportation 3/2018

10-02-2017

Drivers’ response to fuel taxes and efficiency standards: evidence from Germany

Authors: Manuel Frondel, Colin Vance

Published in: Transportation | Issue 3/2018

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Abstract

Using household travel diary data collected in Germany between 1997 and 2015, we employ an instrumental variable (IV) approach that enables us to consistently estimate both fuel price and efficiency elasticities. The aim is to gauge the relative impacts of fuel economy standards and fuel taxes on distance traveled. Our elasticity estimates indicate that higher fuel prices reduce driving to a substantial extent, though not to the same degree as higher fuel efficiency increases driving. This finding indicates an offsetting effect of fuel efficiency standards on the effectiveness of fuel taxation, calling into question the efficacy of the European Commission’s legislation to limit carbon dioxide emissions for new cars.
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Appendix
Available only for authorised users
Footnotes
1
In effect, as the benchmark of 130 g/km is equivalent to, for example, a fuel consumption of 5.6 L of petrol per 100 km, these targets represent a fuel efficiency standard.
 
2
The price series was deflated using a consumer price index for Germany obtained from Destatis (2015). We additionally explored alternative ways of calculating the fuel price, such as by dividing the total expenditures for fuel over the survey period by the total liters purchased or by taking an average of all reported prices, but found that these alternative measures had a negligible bearing on the estimates.
 
3
The indirect rebound effect has also been distinguished in the literature (see, e.g., Greene et al. 1999). Roughly speaking, the indirect rebound arises from an income effect: lower per-unit cost of an energy service implies ceteris paribus that real income grows. For a precise distinction between direct and indirect rebound effects, see the microeconomic framework provided by Borenstein (2015).
 
4
This rule accounts for the fact that, as Bound et al. (1995), Staiger and Stock (1997) and others have shown, the weak-instruments problem can arise even if the endogenous variables and the instruments are correlated at conventional significance levels of 5 and 1% and the researcher is using a large sample (Baum et al. 2007: 489).
 
5
In our case of a single endogenous variable, the F statistic on \(\beta_{z}\) resulting from the first-stage regression (3) using a heteroskedasticity-robust covariance estimator is identical to the more general statistic of Kleibergen and Paap (2006), which has to be employed if the assumption of independent and identically distributed (i. i. d.) errors is invalid.
 
6
As much of the variation in fuel efficiency comes from those households that switched their vehicle, we have focused on those households and have re-estimated Eq. (2) only for car switchers, the results of which are reported in Table 3 in the “Appendix”. While the results for the key variables, fuel prices and fuel efficiency, differ in magnitude, they are not statistically significant in case of the IV estimation. Most notably, this is due to drastically increased standard errors as a consequence of the strong reduction in the numbers of observations.
 
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Metadata
Title
Drivers’ response to fuel taxes and efficiency standards: evidence from Germany
Authors
Manuel Frondel
Colin Vance
Publication date
10-02-2017
Publisher
Springer US
Published in
Transportation / Issue 3/2018
Print ISSN: 0049-4488
Electronic ISSN: 1572-9435
DOI
https://doi.org/10.1007/s11116-017-9759-1

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