Price Elasticity of Gasoline Demand in Iran Transportation Sector and its Forecast to 2015

In this paper, using ARDL method, price elasticity of demand for gasoline is estimated for period 1980-2002. The elasticity is forecasted for he period 2003-2015. The results show that there is a negative and weak relation between real price gasoline (RPG) and gasoline demand. If the RPG rises one unit (200 Rials in nominal price), the gasoline demand would fall 18.5 units (1850 million liters) per year. It seems the reason foe such a low effect is the government polices to keep nominal price of gasoline (NPG) lower than international one. At such a low price, the demand elasticity is very low. In order to forecast the gasoline demand elasticity, three scenarios for NPG rises are considered. The results indicate that, by a 10% annual rise in the NPG, the gasoline demand elasticity would decrease. By a 30% annual rise in the NPG per year, gasoline demand elasticity would increase slowly reaching -0.50 in the last year by forecast. By a 50% annual rise in the NPG per year, gasoline demand elasticity would increase rapidly and it would reach to less than -1.