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American Economic Journal: Economic Policy: Vol. 2 No. 3 (August 2010)

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

Article Citation

Klier, Thomas, and Joshua Linn. 2010. "The Price of Gasoline and New Vehicle Fuel Economy: Evidence from Monthly Sales Data." American Economic Journal: Economic Policy, 2(3): 134-53.

DOI: 10.1257/pol.2.3.134

Abstract

This paper uses a unique dataset of monthly new vehicle sales by detailed model from 1978 to 2007, and implements a new identification strategy to estimate the effect of the price of gasoline on individual vehicle model sales. We control for unobserved vehicle and consumer characteristics by using within model year changes in the price of gasoline and sales. We find a significant sales response, suggesting that the gasoline price increase from 2002 to 2007 explains nearly half of the decline in market share of US manufacturers. On the other hand, an increase in the gasoline tax would only modestly raise average fuel economy. (JEL H25, L11, L62, L71)

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Authors

Klier, Thomas (Federal Reserve Bank of Chicago)
Linn, Joshua (MIT)

JEL Classifications

H25: Business Taxes and Subsidies including sales and value-added (VAT)
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L62: Automobiles; Other Transportation Equipment
L71: Mining, Extraction, and Refining: Hydrocarbon Fuels

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