How Does Fuel Taxation Impact New Car Purchases? An Evaluation Using French Consumer-Level Data

Abstract

This paper sets out to identify the impact of fuel prices on new car purchases, using exhaustive individual-level data of monthly registration of new private cars in France from 2003 to 2007. Detailed information on the car holder enables us to account for heterogeneous preferences across purchasers. We identify demand parameters through the large oil price fluctuations of this period. We find that the sensitivity of short-term demand with respect to fuel prices is generally low. Using these estimates, we assess the impact of a policy equalizing diesel and gasoline taxes, assuming that consumers react similarly to fuel price changes from tax and from oil price variations. Such a policy would slightly reduce the share of diesel in new cars purchases in the short-run (i.e. before supply side adjustments take place), without substantially changing the average fuel consumption or CO2 emission levels of new cars. Alternatively, a carbon tax (at 15 ¬/ton of CO2) could slightly decrease these emissions in the short-run.