of GEL 1,000 per 5.3 lives saved. The calculated return on investment (ROI) of the four policies would be GEL 357 for every GEL invested (UNDP et al. 2018).

Taxes on cigarettes were found to be most cost-effective, among the four interventions studied. Increasing taxes on tobacco to comply with FCTC Art. 6 could advert over GEL 2.2 billion in health care expenses and economic losses over a 15-year period, with a return of GEL 221 for every GEL invested. Expressed differently, taxation could save 13 lives at a cost of GEL 1000. See <u>Annex 2</u> for methodological details.

Another study by the NCDCPH et al. (2016) uses macroeconomic and customs data and a top-down approach to model the effect on tobacco consumption and revenue collection, of meeting two policy targets of (a) Implementing EU tax regulation (assuming excise duty per cigarette pack at 4.54 GEL minimum), and (b) Reducing smoking prevalence by 2 percent annually (assuming a 2 percent annual drop in volume consumed). Four policy scenarios are considered, based on different time-frames to meet the policy targets. Changes in consumption and revenue collection are estimated based on assumed elasticity parameters (price-elasticity of -.05 and income elasticity of .59) and macroeconomic projections. Results suggest that the scenario with the largest (quickest) annual shocks on excise duties could reduce cigarette consumption by an average of -5.25 percent annually between 2015 and 2020. This scenario would also result in additional tax revenues from excise duties and VAT on cigarettes of GEL 1.4 billion between 2015 and 2020. The study argues that large immediate tax shocks (like those under Scenario I) seem most adequate to reduce tobacco consumption in Georgia. Annex 3 includes further methodological details.

Price elasticities of demand for tobacco products Taxes and price policies on tobacco improve health and economic outcomes by inducing consumers to reduce smoking. They require that consumer behavior respond to price changes. Those responses are expressed by the price-elasticities of demand for tobacco. The existing body of evidence suggests that the elasticity of demand among adults lies between 0.3 and 0.8, implying that a 10 percent increase in cigarette prices will lead to a 3 percent to 8 percent decline in consumption (CBO 2012; Chaloupka and Warner 2000; Gallet and List 2003; IARC 2011).

This responsiveness or elasticity of demand to prices is generally expected to decrease with income. Priceelasticities of tobacco can be as low (or inelastic) as -0.4 in high income countries (World Bank 1999), but larger in magnitude—around -0.6—for low- and middle- income countries (IARC 2011). Lower-income households in a variety of countries also tend to show higher price elasticity of demand relative to mediumand higher-income groups (World Bank 1999). However, the evidence is still mixed in other country cases (IARC 2011). Tobacco elasticities can also be expected to increase in the future, following the argument that today’s young generations are more-responsive to price shocks due to lower dependence on nicotine, larger peer effects, or limited disposable income relative to adult smokers (Jha and Peto 2014).

No previous microeconomic empirical estimation of the price-elasticities of tobacco—at the populationlevel or by income group segmentation—was found in the review of the literature for Georgia. However, some similar exercises have been performed for other countries of the region. The study by Postolovska et al. (2017) in Armenia finds an elasticity of demand for tobacco of -0.54. Estimated at the decile-level, all results continue to be inelastic, and they decrease with income level (in absolute value). The price elasticity for the poorest quintile is relatively high at -0.74, while the elasticity for the richest quintile in Armenia drops to -0.28. In Ukraine, Denisova and Kuznetsova (2014) estimate the national price elasticity of demand at -0.28. However, decile-specific estimations suggest that the poorest 10 percent of households would reduce their cigarette consumption by 44 percent when faced by a 100 percent price increase. Meanwhile, the wealthiest decile would only react to an equivalent price shock by reducing the quantity of cigarettes consumed by 11 percent. Fuchs and Meneses use the Ukrainian household budget survey 2010-2013 to 9