Academic journal article Economic Inquiry

Gasoline Prices and Road Fatalities: International Evidence

Academic journal article Economic Inquiry

Gasoline Prices and Road Fatalities: International Evidence

Article excerpt

I. INTRODUCTION

While a negative impact of gasoline prices on road fatalities has been documented for the United States, there is limited international evidence on whether road death rates are higher in countries with lower gasoline prices. In this study, we employ data for a panel of 144 countries during 1991-2010 to present international estimates of the gasoline price elasticity of road fatalities. To address the potential endogeneity of gasoline prices, we use each country's underground oil reserves and the international crude oil price as instruments for that country's gasoline price. We find that the mean long-run gasoline price elasticity of road deaths is in the order of -0.3 to -0.6 and that around 35,000 lives could be saved on roads each year by phasing out global fuel subsidies. We also use our results to estimate the number of deaths that could be avoided on U.S. roads by an increase in fuel taxes.

Road safety is a leading public health issue. Road crashes are the cause of 1.3 million deaths every year; the ninth-leading cause of death globally and the number-one cause of death for people between 15 and 29 years of age (data for 2011; World Health Organization 2013a). Road death rates are particularly high in middle- and low-income countries, which each year see an average of 20 and 18 deaths per 100,000 population, respectively. There are around 9 road deaths per 100,000 population each year in high-income countries. Up to 50 million people worldwide also suffer nonfatal injuries each year, bringing large human and financial costs. The global road death toll is expected to increase to around 2.4 million per year by 2030 in a business-as-usual scenario, making road crashes the fifth-leading cause of death (World Health Organization 2013b). Finding ways to reduce global road deaths is an increasingly important policy imperative.

A negative relationship between the gasoline pump price (in U.S. cents) and annual road deaths per 100,000 population for a large cross section of countries in 2010 is presented in Figure 1. Countries with low gasoline prices, such as Venezuela and Iran, have among the highest road death rates, whereas road fatalities tend to be less frequent in high-price countries. Figure 1 also demonstrates substantial variation in road fatality rates among countries with similar gasoline prices. A number of additional variables, including per capita incomes, road-use laws, and road infrastructure, will be considered in explaining this variation.

The large cross-country variation in retail prices for gasoline--a tradable commodity--exists primarily because of differences in tax and subsidy policies. Venezuela had the lowest average price of gasoline in 2010: just 2 U.S. cents per liter. Venezuela's gasoline price is substantially below the international price for crude oil (51 cents per liter in 2010; GIZ 2012), and so involves a large subsidy for consumers. In contrast, some governments impose high taxes on gasoline that result in high retail pump prices. In Turkey, for instance, the average gasoline pump price was 252 U.S. cents per liter in 2010, including 139 cents of taxes (International Energy Agency 2013a).

There are several ways in which higher gasoline prices may reduce road deaths. It is likely that the principal channel is a reduction in the distance traveled in motor vehicles as people respond to the incentive to substitute away from a more expensive commodity. Reduced driving decreases the exposure of both vehicle occupants and others to road crashes. Reductions in distance traveled may be a result of people transitioning to less transport-intensive activities, alternative transport options, and closer workplaces. Some of these responses take time, so the long-run gasoline price elasticity of road deaths is likely to exceed the short-run elasticity.

In addition to reducing distance traveled, higher gasoline prices might also lead to a reduction in road deaths per kilometer driven. …

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