Raising tobacco taxes in selected countries of Central America. International Development Research Centre technical report
Abstract
This Project aimed at providing more sound economic, technical, legal and strategic background to raise tobacco taxes in three countries of Central America: Guatemala, Honduras and El Salvador. We sought to produce new evidence on the impact of tax increases through econometric studies of the demand for cigarettes as a necessary step to simulate tax and price increase and persuade decision makers of the benefit of raising taxes
for health and fiscal revenue reasons.
Econometric time series studies of aggregate demand were performed in Honduras and El Salvador but not in Guatemala, where the new data was insufficient to improve a previous 2010 meta-analysis study.
Long term price elasticities were found -0.62 in El Salvador and -0.72 in Honduras. Income elasticities were estimated at 0.62 in Honduras and El Salvador 1.90. The previous study estimated for Guatemala a price elasticity of -0.68 and an income elasticity of 1.08
The expected impact of cigarette taxes and prices was analyzed through a technical approach to simulate changes in tobacco taxes on retail prices, fiscal revenue, profit margins and taxes per cigarette pack using the elasticities´ estimates from the aggregate demand studies.
Draft tobacco tax legislation was proposing specific type of taxes and increases in three years amounting to tax increases of as to raise prices higher than those of Costa Rica and close to those of Panama´s, the higher in the Central American sub-region . The impact of a newly designed cigarette tax policy was presented at workshops with parliamentarians, journalists and activists and occasionally to technical staff at the Ministries of Finance and Health in private meetings.
