deciles. If lower-income households are more likely to reduce their high consumption rates of tobacco when faced with a price increase, they can naturally capture the highest benefits of the tax reform.

Similar studies have been conducted in the Europe and Central Asia (ECA) region, in countries that may be considered Georgia’s peers. Using the ECBA on Armenia, Postolovska et al. (2017) find that increasing the cigarette excise tax rate to 75 percent of the retail price would bring large health and financial benefits to Armenian households, with pro-poor impacts. They estimate that 88 thousand premature deaths, US$63 million in out-of-pocket medical expenses, 22 thousand poverty cases, and 32 thousand cases of catastrophic health expenditures could be averted with the price increase. The bottom 40 percent of the population would concentrate half of the adverted premature deaths and 27 percent of the prevented cases of poverty. In the Kyrgyz Republic, a 40 percent price increase on cigarettes could contribute to avert 55,000 tobacco-related premature deaths, US$1.3 million in OOP expenditures, US$3.8 million in government expenditure to treat tobacco-related disease, and 6,400 cases of poverty. The poorer quintiles would concentrate the highest relative benefits (Postolovska et al. 2018).

Available evidence from Georgia Total health care expenditures are particularly high in Georgia, estimated at GEL 2,871 million in 2016 (WDI 2016). The share of 8.4 percent of these expenditures in GDP in Georgia is comparable to the average for the higher-income OECD countries (which had average health spending of 8.9 percent of GDP in 2016) (OECD 2018). Moreover, out-of-pocket payments account for 56 percent of health expenditures or 4.7 percent of GDP in Georgia, despite large reductions over recent years.<sup>9</sup> Based on budget data from the IHS, health care accounted for 12.5 percent of the cash consumption expenditure by Georgian households in 2018 (Geostat 2019).

Some previous work has attempted to estimate the health and economic costs specifically linked to tobacco in Georgia, as well as the potential outcomes of different policy options for tobacco-control. According to the Tobacco Atlas, the economic costs of smoking in Georgia add to GEL 619 million, including direct health care costs and the indirect costs in productivity associated with tobacco-attributable mortality and morbidity (The Tobacco Atlas 2019).

A study conducted in partnership between the UNDP, the WHO FCTC Secretariat and the NCDCPH (National Center for Disease Control and Public Health of Georgia) analyzed the effect of implementing four FCTC priority policies for tobacco-control (UNDP et al. 2018).<sup>10</sup> The study calculated the total economic costs of tobacco in Georgia at GEL 825 million annually, or 2.43 percent of GDP in 2016. Those estimated costs included direct health care expenses and the indirect economic costs related to productivity losses (related to premature mortality, increased morbidity, and time allocation to smoking breaks). A back of the envelop estimation suggests that tobacco-related medical expenses amounted to GEL 327 million in 2016.<sup>11</sup> The indirect losses in productivity accounted for the remaining 60 percent of the total burden of tobacco. Full implementation and enforcement of the four interventions could potentially advert GEL 3.6 billion in health care and economic losses over a 15-year period (including 1.4 billion in direct health care expenses and GEL 2.2 billion in productivity losses). It would also save 53,110 lives over the 15-year period, at a financial cost

> 9 Calculations for 2016, based on the WDI database. This share has dropped significantly from 72.7 percent in 2010. 10 The policies considered are: (1) Increasing taxes on tobacco to reduce affordability (FCTC Art. 6), (2) Banning indoor smoking in public places (FCTC Art. 8), (3) WHO-FCTC recommended labeling and packing standards (FCTC Art. 11), and (4) Banning tobacco advertising, sponsorship and promotion (FCTC Art. 13).

> 11 The authors approximate the tobacco-related medical expenses by applying a Smoking Attributable Fraction (SAF) of 8 percent on the total health care expenditures in the country (NCDCPH et al. 2016).

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