The Effects of Gasoline Differential Taxation on Automobile Demand (Efectos Del Diferencial De Impuestos a Las Gasolinas En La Demanda De Automóviles)

17 Pages Posted: 7 Feb 2010

Date Written: January 31, 2010

Abstract

The gasoline tax policy in Chile has always kept lower tax rates for gasoline relative to diesel. As a result, the share of diesel cars has been systematically growing, especially over the last 5 years. Given that, on average, 20% of diesel engine emissions are equivalent to 80% of gasoline engine emissions, the increase in diesel cars has impacts on the magnitude of negative externalities associated to cars use. In the case of cities like Santiago, with high levels of pollution, the impact might be large and important.

In this paper I estimate the effect of the differential tax rates between diesel and gasoline on the automobile demand in Chile. The results show diesel cars demand elasticities of 3.4 and 2.1 with respect to price and the difference in tax rate respectively. The magnitude of the elasticities show that a change in tax policy, towards equalizing diesel and gasoline tax rates and enacting a diesel car tax, would have a large impact in terms of reducing emissions and pollution in Chile.

Keywords: Gasoline Taxes, Diesel Cars, Negative Externalities, Automobile Demand

JEL Classification: H23, Q58, L91

Suggested Citation

Agostini, Claudio A., The Effects of Gasoline Differential Taxation on Automobile Demand (Efectos Del Diferencial De Impuestos a Las Gasolinas En La Demanda De Automóviles) (January 31, 2010). Available at SSRN: https://ssrn.com/abstract=1548529 or http://dx.doi.org/10.2139/ssrn.1548529

Claudio A. Agostini (Contact Author)

Universidad Adolfo Ibañez ( email )

Diagonal Las Torres 2640
Santiago
Chile
(562)3311130 (Phone)

HOME PAGE: http://www.uai.cl/profesores/claudio-agostini

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