Impact of fuel price on vehicle miles traveled (VMT): do the poor respond in the same way as the rich?

Document Type

Journal Article

Publication Date

2014

Subject Area

economics - pricing, mode - car

Keywords

Vehicle miles travelled (VMT), Fuel efficiency, Fuel (gasoline) price, Income, Structural equations

Abstract

The effects of fuel price on travel demand for different income groups reveal the choices and constraints they are faced with. The first purpose of this study is to understand these underlying choices and constraints by examining the variation of fuel price elasticity of vehicle miles travelled (VMT) across income groups. On the other hand, the rebound effect—increase in VMT as a result of improvement in fuel efficiency may offset the negative effect of fuel price on VMT. The second purpose of this study is to compare the relative magnitudes of the fuel price elasticity of VMT and the rebound effect. A system of structural equations with VMT and fuel efficiency (MPG, miles per gallon) as endogenous variables is estimated for households at different income levels from 2009 National Household Travel Survey. Higher income households show greater fuel price elasticity than lower income households. Fuel price elasticities are found to be −0.41 and −0.35 for the two highest income groups, while an elasticity of −0.24 for the lowest income group is identified. The rebound effect is found to be only significant for the lowest income households as 0.7. These findings suggest the potential ability of using fuel price as a tool to affect VMT. The study results also suggest possible negative consequences faced by lower income households given an increase in fuel price and call for more studies in this area.

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Permission to publish the abstract has been given by SpringerLink, copyright remains with them.

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