Economic crisis and consumption: an almost ideal demand system estimation for Turkey with time-varying parameters

Abstract

This paper proposes an alternative approach for analyzing the impacts of economic crises on consumption demand patterns in the absence of household consumption or price data. To do so, an Almost Ideal Demand System (AIDS) which incorporates time dummies corresponding to the periods of economic crises is estimated by using Turkish household final consumption data derived from national accounts. All findings are plausible and coherent with the theoretical framework and show that the crises significantly affect consumption demand patterns in Turkey. The study also reveals tax cuts of 2009 were designed on the basis of economic efficiency, although they were shown to be regressive by Albayrak ([2011. “Finansal Krizde Uygulanan Vergi Politikalarının Gelir Dağilimi Etkileri: 2004-2009.” Ankara Üniversitesi SBF Dergisi 66 (2): 001–034).

Keywords

• economic crisis
• almost ideal demand system
• consumption