Income and Fuel Price Elasticities of Car Use

Abstract: Understanding how car travel and ownership respond to income and fuel prices, and how that response varies between households is crucial for car use policies and forecasts. This thesis, consisting of two papers, aims to investigate this by estimating the intemporal income and fuel price elasticities of car use using micro registry panel data on all Swedish households from 1998 to 2018. In Paper I, the income and fuel price elasticities of vehicle kilometres travelled (VKT) is estimated for all Swedish households using a linear fixed effects model. In order to investigate how different groups respond, the elasticities are estimated by income group and municipality type. The effect of income and fuel prices on VKT is largest in the middle of the income distribution but is relatively stable across municipality types. The effect of fuel prices on VKT is largest in densely populated municipalities compared to rural municipalities. Moreover, it is shown that the income elasticity is underestimated if income variable is misspecified. Paper II utilises a discrete-continuous model accounting for the effect of income and fuel prices on car ownership. It is shown that income impacts car ownership and VKT conditional on car ownership of similar magnitude, while fuel prices primarily impact VKT conditional on car ownership. Furthermore, we also estimate the model on six partially overlapping sample periods and find that the income elasticity has decreased over time, while the absolute fuel price elasticity increased up until the early 2010s and decreased thereafter.