This paper uses panel data from 23 European countries for the period 1990 to 2019 to analyze how the own-price elasticities of diesel demand vary with the relative price of diesel to gasoline. We find that the own-price elasticities of diesel demand (in absolute values) exhibit an inverted-U pattern to the relative price near one. This result shows that the substitution between diesel and gasoline is a crucial determinant of the own-price elasticities of diesel demand, which the literature has largely overlooked. Our findings suggest that policy-makers can improve the accuracy of predicting outcomes of diesel taxation policies by taking account of relative price.

[Key Words] Automotive diesel, Own-price elasticities of demand, Substitute fuels, Relative prices between motor fuels