Testing for differences in the own-price elasticity of demand for gasoline across the United States

Thesis (M.A., Economics)--California State University, Sacramento, 2012.The United States has taken some action to reduce carbon emissions through a voluntary carbon credit market. This is a start, but other policies, such as increased gasoline taxes, are likely needed to reduce carbon emissions to levels that have the potential to affect climate change. Information on the own-price elasticity of gasoline demand is essential in determining an optimal tax that internalizes the cost of carbon emissions. This study estimates the price elasticity of gasoline demand for a 48 contiguous United States panel to contribute information to estimate the optimal gasoline tax for each state and contribute to the discussion about whether individual United States have unique optimal gasoline tax rates. Recently, Lin and Prince (2009) estimated the price elasticity of gasoline demand and optimal gasoline tax for California and suggest that the state is different and should have a unique optimal gasoline tax since prices are more variable. A single tax is reasonable given states are similar, or as Lin and Prince (2009) suggest, state optimal gasoline taxes are different from each other in terms of responsiveness to changes in prices. This assertion was tested by estimating the own-price elasticity of gasoline demand for the 48 contiguous United States, and testing if elasticities differ significantly between California and the other 47 States. Results from an F-test on difference coefficients, and demonstration of individual state price elasticities statistically different from California???s support the Lin and Prince (2009) claim that states will need different optimal gasoline tax rates.Economic