Abstract:

We investigated the automobile as a durable consumption good in Turkey and found quite a strong positive correlation with the business cycles of GDP and auto sales as expected. The cyclical behavior of auto sales were found to be correlated but magnified in magnitude with that of real GDP in Turkey. We used regression analysis to estimate automobile demand in Turkey using the official auto price index of TurkStat and also an index of ours (Fisher’s price index) based on 4 major auto categories. The demand for autos in Turkey was found to be both price and income elastic. We pointed out to the possibility that the position of the demand curve for automobiles in Dec-2010 to have been located much further to the right compared to that in Jan-2009 (Global crisis). Therefore we concluded that the price elasticity may change over time due to a change in the price of autos, but also due to shifts arising from other factors like income, interest rates…and suggested to use a linear model in estimation from which a time-varying elasticity can be recovered. We find an inverse relationship between the business cycles and the price elasticities of a durable good like autos. Finally, and most importantly, if the government cares about its tax collections then the fact that the price elasticity of demand may change over the business cycles in a way we tried to show in this article must always be taken into account by the government officials in a big micro sector like automobiles!

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