Heterogeneity in the Response to Gasoline Prices: Evidence from Pennsylvania and Implications for the Rebound Effectǂ

The consumer response to changing gasoline prices has long interested economists and policymakers, for it has important implications for the effects of gasoline taxation and vehicle energy efficiency policies. This study examines both the elasticity of driving with respect to changing gasoline prices and heterogeneity in this elasticity by geography, the fuel economy of the vehicle, and the age of the vehicle. We use detailed annual vehiclelevel emissions inspection test data from Pennsylvania that include odometer readings, inspection zip codes, and extensive vehicle characteristics. We estimate a short-run gasoline price elasticity of driving demand of -0.10, and find substantial heterogeneity in this responsiveness. The elasticity is largely driven by low fuel economy vehicles, as well as vehicles between 3 and 7 years old. Our findings help reconcile some of the recent literature and provide guidance on the magnitude of the direct rebound effect from light duty vehicle energy efficiency policies. JEL classification codes: H23, Q38, Q41.