The demand for transport fuels in Turkey

- We estimate gasoline and diesel demand functions in Turkey.
- We estimate price and income elasticity of demand for both fuels.
- Both fuels are price inelastic.
- Carbon taxes will be ineffective to reduce carbon emissions in Turkey.

In this paper, we estimate the demand for transport fuels in Turkey. Specifically, using four different models, namely a partial adjustment model, a distributed lag model, an autoregressive distributed lag model, and an error correction model, we estimate gasoline and diesel demand functions with quarterly data covering the period 2003:Q1-2014:Q3. We find a stable long-run relationship only for diesel demand, income and price. Our results imply that gasoline demand does not respond to income and price in the long run, reflecting a shift from gasoline towards diesel induced by differential tax policies. Furthermore, we find that transport fuel demand is price inelastic, making tax on fuel a perfect tool for raising budget revenues. In addition, our results suggest that fuel demand responds to negative and positive price changes symmetrically.