Do car drivers respond differently to fuel price changes? Evidence from German household data

Abstract

For cutting down greenhouse gas emissions in road transport, core economic measures are relying on the response to increasing fuel prices—i.e., the fuel price elasticity. A focal point of the effectiveness of these measures is the heterogeneity in fuel price elasticities of different vehicle users. These effects were often neglected in the transport-related literature and were only incorporated recently. The results show, however, sometimes contradicting conclusions on influencing parameters such as income, region-type or household size. In this paper, we used a pooled OLS model estimated on a German refuelling diary data set and analysed the impact of various household level characteristics on fuel price elasticities through an analysis of interaction terms and their marginal effects. This analysis provides a cornerstone in this discussion on fuel price elasticities. We found out that the overall results contrast the existing literature by identifying heterogeneity in fuel price elasticities among German households for different socio-economic and regional characteristics. The results are highly relevant for policy modellers and for introducing effective policy measures for mitigating greenhouse gas emissions in road transport.