THE ESTIMATION OF THE AUTOMOTIVE FUEL DEMAND IN IRAN: ALMOST IDEAL DEMAND SYSTEM APPROACH

This paper analyzes the demand for fuels in Iran automotive sector, using the Almost Ideal Demand System to estimate price and income elasticities for all the available fuels in the automotive sector: gasoline, automotive gas oil and Liquefied Petroleum Gas (LPG). These estimates can be very useful in predicting the overall impacts of price policies designed to reduce fuel consumption and to address concerns of carbon emissions or energy security. Empirical results indicate all own-price elasticities are negative and significant at 5% level. The own-price elasticity for gas oil, gasoline and LPG were estimated by about -0.22, -1.01 and -3.58, respectively. The findings also show that gasoline and gas oil are normal goods and LPG being an inferior good.