Estimating the supply and demand of gasoline using tax data

We estimate supply and demand functions for the U.S. gasoline market using information from excise tax returns provided by the IRS for the period 1990-2009. We find price and income elasticities of demand similar to those found using EIA data. We find a price elasticity of supply of 0.29, which differs from the common assumption of a perfectly inelastic short-run supply curve. By using a novel data source, the analysis provides a robustness check of aggregate studies of gasoline demand and a consistent, econometric estimate of the price elasticity of gasoline supply. The results are useful in guiding tax and regulatory policies regarding gasoline consumption.

► First to estimate price elasticities of supply and demand for gasoline using the same data and consistent methods. ► Use a novel data source to estimate the models - providing a robustness check on the myriad studies using EIA data. ► Use of tax data which arguably provides a better proxy for domestic consumption of gasoline. ► Discuss the implications for tax and regulatory policies of our estimates.