Title: Fuel taxes and consumer behaviour: a Markov-switching approach

Authors: Simon Porcher; Thomas Porcher

Addresses: IAE Paris Université Paris I Pantheon-Sorbonne, Sorbonne Business School, 8 bis rue Croix de Jarry, 75013 Paris, France ' Department of Applied Economics, Paris School of Business (PSB), 59 Rue Nationale, 75013 Paris, France

Abstract: Fuel taxes can be employed to correct externalities associated with automobile use and raise government revenue. The general understanding of the efficacy of existing taxes is largely based on empirical analyses of consumer responses to fuel price changes. In this paper, we directly examine how fuel taxes, as distinct from tax-exclusive fuel prices, affect fuel demand. To do so, we use a Markov-switching approach on monthly observations of French fuel prices from 1983 to 2013. Our analysis reveals that consumers respond significantly faster to increases in fuels taxes than to increases in tax-exclusive fuel prices. This result raises questions about our understanding of the efficacy of existing fuel taxes and of the optimal tax to achieve the various goals for which they are implemented.

Keywords: energy; fuel; fiscal policies; consumer behaviour.

DOI: 10.1504/IJGEI.2018.092306

International Journal of Global Energy Issues, 2018 Vol.41 No.1/2/3/4, pp.14 - 24

Received: 17 Jun 2017
Accepted: 29 Sep 2017

Published online: 29 May 2018 *

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