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Price and expenditure elasticity of cigarette demand in El Salvador: a household-level analysis and simulation of a tax increase
  1. Guillermo Paraje1,
  2. Daniel Araya1,
  3. Adonay De Paz2,
  4. Nigar Nargis3
  1. 1Universidad Adolfo Ibañez, Santiago de Chile, Chile
  2. 2Ministerio de Trabajo y Previsión Social, San Salvador, El Salvador
  3. 3Economic and Health Policy Research, American Cancer Society, Atlanta, Georgia, USA
  1. Correspondence to Dr Guillermo Paraje, Escuela de Negocios, Universidad Adolfo Ibañez, Santiago de Chile, Región Metropolitana de Santiago, Chile; guillermo.paraje{at}uai.cl

Abstract

Background In El Salvador, 8.8% of adults 15 years and older smoke cigarettes. Little is known about the sensitivity of cigarette consumption among the adults in El Salvador to tax and price increases and income growth.

Methods Elasticities are estimated using Deaton’s Almost Ideal Demand System model applied to data from the National Household Income and Expenditure Survey 2005/2006 for the total population and separately for income groups. The estimates are then used to simulate the effects of a proposed change in tobacco tax policy on cigarette consumption and tax revenue.

Findings The estimated price elasticities (−0.77 for the total population) are within the range of price elasticity estimates available for low and middle-income countries. Given the estimated elasticities, a tobacco tax increase is expected to reduce the number of smokers (by almost 20%) and increase tobacco tax revenue (by more than 50%).

Conclusions Increasing tobacco taxes has the potential to decrease consumption in El Salvador and raise fiscal revenues. The tobacco tax burden in El Salvador is one of the lowest in Latin America and the social costs of tobacco consumption largely exceed the tobacco tax revenues. An increase in tobacco tax could significantly decrease the number of smokers and reduce the burden of tobacco-related diseases and deaths.

  • taxation
  • socioeconomic status
  • public policy
  • economics
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Footnotes

  • Twitter @gparaje

  • Contributors GP and ADP conceptualised the study. GP, DA and NN conducted the statistical analysis and contributed substantially to the interpretation of the findings. GP, DA, ADP and NN wrote the article. GP is the guarantor of the study.

  • Funding This work has been funded by the International Union Against Tuberculosis and Lung Disease (The Union) and the Pan-American Health Organization.

  • Competing interests None declared.

  • Patient consent for publication Not required.

  • Provenance and peer review Not commissioned; externally peer reviewed.

  • Data availability statement Data are available in a public, open access repository. Data are available upon reasonable request. Secondary publicly available data were used.

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