Gasoline Price and New Vehicle Fuel Efficiency: Evidence from Canada

Using data on all new vehicles registered in Canada from 2000 to 2010, we estimate the elasticity of the fuel economy of the new vehicle stock with respect to gasoline price. We find that a 10% increase in gasoline price causes a 0.8% improvement in the fuel economy of new vehicles. However, we also show that consumers respond much more strongly to fuel taxes than to other components of the gasoline price. Finally, we provide evidence that consumers in dense urban areas are more responsive to changes in fuel prices than consumers living on the urban periphery.