The consumption expenditure of households in Turkey: Demand system estimation with panel data

Due to the fact that the consumption expenditure of households is always a good indicator of standard of living; studies on households? consumption enable economists and policy makers to increase living conditions of inhabitants by making reliable policies and by monitoring the temporal changes in the level of welfare.In this study, calculating the income-demand elasticities of consumer goods, which will give some essential information to authorities to make accurate decisions about social policies is the main purpose of this study. This will be done by estimating the parameters of household demand for consumption. It is also important to emphasize that micro data sets obtained by 2005 and 2009 Household Budget Surveys compiled by Turkish Statistical Institute were used in this study. In this regard, under the assumption of weak separability, it is assumed that the total expenditure of households is delivered into the following 12 different categories of goods and services. The expenditure share of these different categories of goods and services is the dependent variable of this model. In addition, the total household expenditure, the squared total household expenditure, the household size adjusted in accordance with the OECD equivalence scale, and the logarithms of squared household size are the independent variables used in the study.The Seemingly Unrelated Regression Equations (SURE) is used to estimate the Quadratic Almost Ideal Demand System (QAIDS) so as to determine the demand parameters of the main commodity groups. In addition, since the households studied in the Household Budget Surveys in Turkey are monthly changing, the Pseudo panel data set method, which may not necessarily involve similar individuals in repeated cross sections and which was developed by Deaton (1985) is used in this study. The Pseudo panel data set were formed based on the household head?s year of birth and education level; therefore, cohorts are divided into four education levels and five age intervals.The principal result of the study is that the consumption elasticities of the food and nonalcoholic beverages, housing, water, electricity, fuel, clothing and footwear, furniture and house appliances, communications, alcoholic beverages, cigarette and tobacco expenditure are less than 1. Therefore, it can be said that these commodity groups are considered to be mandatory goods. On the other hand, the consumption elasticities of the health, transportation, education services, entertainment and culture, restaurants, hotels, patisseries are more than 1. Thus, these commodity groups are considered to be luxury goods. In this regard, the study concludes that Turkey is considered to be a developing country in terms of the consumption characteristics.