Aim: Analyze the elasticities of demand in the short and long term for cigarettes in El Salvador as a tool to support the recommendations on tax increases to reduce the prevalence and consumption by increasing prices.
Methods: Analyzed the demand for cigarettes in El Salvador through a time-series econometric model with a database of Directorate General of internal taxes (DGII) and the General Directorate of statistics and censuses (DIGESTYC) of El Salvador. The analysis period was: 2000Q1 quarterly-2012q4. The usual tests were carried out to prevent the econometric estimation was false. It was found that sales by volume, real variable, selling prices and real income per capita were Silva excellent; This result allows you to use a template with the elasticity estimates of error correction in the short term and the long term.
Results: It was found that only in the long run elasticities are statistically significant at 5% probability. The results indicate a long-term price elasticity (five trimesters)-0.9287 and 0.9978 income.
Conclusions: the level of the absolute value of the price elasticity is high, although it is within the levels estimated in other studies in countries with low per capita income. A tax increase of an amount of USD ($ $1.04 per pack of 20 cigarettes to $ $1.66 over a period of three years) would reduce the demand of 20% to 31% and increase tax revenues from 9% to 22%.