HKS Affiliated Authors
Professor of Public Policy, HKS; Harold Hitchings Burbank Professor of Political Economy, FAS
Excerpt
Excerpt
Anticipation, Tax Avoidance, and the Price Elasticity of Gasoline Demand. John Coglianese, James Stock, February 2017, Paper, "Traditional least squares estimates of the responsiveness of gasoline consumption to changes in gasoline prices are biased toward zero, given the endogeneity of gasoline prices. A seemingly natural solution to this problem is to instrument for gasoline prices using gasoline taxes, but this approach tends to yield implausibly large price elasticities. We demonstrate that anticipatory behavior provides an important explanation for this result. We provide evidence that gasoline buyers increase gasoline purchases before tax increases and delay gasoline purchases before tax decreases." Link