The dynamics of fuel demand and illegal fuel activity in Turkey

- We employ an advanced time series bootstrap DGP in a rolling window framework.
- We showcase the dynamics of the price and income elasticities of fuel demand.
- We also develop a method to estimate the size of illegal fuel activity.
- Tax losses due to illegal diesel have reached 700 million dollars since 2006.

We expose the dynamics of road fuel demand by employing maximum entropy resampling based interval estimates in a fixed width rolling window framework. Our approach facilitates using a uniform specification in a sequential procedure while also providing robust and efficient estimates that can evolve over time. Ours is also the first study to develop a method for estimating illegal fuel activity. To demonstrate our methodology, we use monthly data between 2003-2012 and focus on the demand for diesel and gasoline in Turkey. The results show estimated monthly illegal activity ranging between 5-23 million liters over the last six years.