In 2007, Venezuelan President Hugo Chavez increased the tax on whiskey, brandy, and cognac by $1.79 per liter and increased the tax on cigarettes by 20 cents per pack. Regarding the liquor tax, one commentator noted, “It’s unfair because, in the end, the consumer is the one who pays.” Regarding the cigarette tax, another commentator noted, “The Venezuelan is not going to stop . . . smoking” [CNN, 2007].

Diagram models for the liquor and cigarette markets in Venezuela that are consistent with these observations.