A measure of the informal sector for the Turkish diesel market

ABSTRACT

Measuring the size of the informal diesel market is important for determining tax revenue losses and identifying inefficiencies in tax policies. The conventional ways of assessing the informal sector entail either not allowing the measurement of the size of the informal sector across time or assuming a stable relationship between diesel consumption and a set of economic variables. This study assesses the informal sector of the Turkish diesel market by using the Kalman filter method. This method allows unobserved values to be estimated with observed variables. Using monthly interpolated GDP, official diesel consumption, and the number of diesel motor vehicles, Turkey’s unobserved informal diesel fuel consumption between January 2005 and February 2020 is estimated. The results obtained with this estimation method reveal that the level of informal diesel consumption increased until 2012–2014; it then started to decline at the end of 2014 and started to increase again after 2018. These dates are associated with periods of economic recession, political developments, and the passing of anti-smuggling legislation.

KEYWORDS:

• Informal economy
• diesel consumption
• Kalman filter

Acknowlegements

We thank for Anita Akkaş, Leslie Demir and anonymous referees for their valuable comments and suggestions, and Fatih Karanfil for providing us with the MATLAB program codes for the Kalman filter estimates.

Notes

¹ As robustness analyses, we repeat our estimates in different specifications with additional variables. They are all gathered from the data delivery system of the Central Bank of the Republic of Turkey.

² Revisions on Anti-Smuggling Law No. 5607 on 06.14.2014.

³ Unit root and stationary tests of all the variables used in the remaining part of the paper can be found in Table 1.