How Georgia’s Public Spending and Taxes Impact Inequality: A 2025 World Bank Review

The 2025 report “Navigating Fiscal Realities for Equitable Growth in Georgia”, developed by the World Bank in collaboration with the Commitment to Equity (CEQ) Institute and Tulane University, presents a deeply analytical account of how fiscal policy affects social and economic equity in Georgia. Drawing on the Commitment to Equity (CEQ) framework and data from Georgia’s Household Income and Expenditure Survey (HIES), the report aims to quantify the redistributive power of government taxes and transfers. It is not merely a technical fiscal analysis, but a diagnosis of fairness and inclusivity within state policies. Using data from 2022, the authors dissect who gains and who loses in Georgia’s fiscal system, and how policy tweaks can create a more equitable economic landscape.

Health and Education: The Public Sector’s Equity Pillars

A major section of the report is dedicated to the government’s in-kind provision of essential services like education and healthcare, areas that serve as the bedrock for long-term equity. The authors model public education benefits by evaluating enrollment numbers and cost structures across four levels of schooling: preschool, general education, vocational, and tertiary. By matching student data with expenditure levels, they estimate per capita benefits and distinguish between public and private school attendance based on spending thresholds. This method shows the state's considerable role in subsidizing education, especially for lower-income groups.

On the healthcare front, Georgia’s Universal Health Care Program (UHCP) is examined in detail. The program stratifies service delivery by socioeconomic categories, covering children, pensioners, disabled persons, and veterans more extensively than the general population. The Ministry of Internally Displaced Persons, Labour, Health and Social Affairs (MoILHSA) plays a central role in administering and regulating this healthcare system. The report uses an insurance-model approach to distribute health expenditures proportionally among different demographic groups. In-kind health benefits are shown to significantly supplement household welfare and reduce inequality when measured against pre-fiscal income.

Pensions and Transfers: Small Amounts, Big Impacts

Pensions receive special treatment in the analysis through a dual-method lens: one where pensions are seen as direct government transfers, and another where they are viewed as deferred income (i.e., compensation from past contributions). The latter approach, pensions as deferred income, offers more realistic insights into the real-world impact on household finances. Under this scenario, the Gini coefficient, a key measure of inequality, drops from 0.367 in pre-fiscal income to 0.246 after all fiscal policies are applied. Poverty also sees a marked decline, reinforcing the idea that pensions play a stabilizing role in income distribution.

The report also assesses the impact of other social transfers, such as targeted support for vulnerable families, internally displaced persons, and families who have lost a breadwinner. Though these transfers are relatively modest in size, their targeted nature means they disproportionately benefit the poorest households. Quantitative metrics like the redistributive effect and Kakwani index show these transfers to be highly progressive. For instance, transfers to vulnerable families have a strong poverty-reducing impact despite comprising a small share of public expenditure. The findings make a strong case for maintaining, and potentially expanding, such targeted interventions.

Taxes: A Mixed Bag for Redistribution

While transfers show promise in reducing poverty and inequality, taxation emerges as a more complex, and sometimes problematic, component of Georgia’s fiscal framework. Direct taxes like the personal income tax (PIT) and property taxes are found to be mildly progressive, providing some redistributive effect. However, indirect taxes such as the value-added tax (VAT) and excise duties are shown to be regressive, disproportionately burdening lower-income households relative to their consumption.

The report uses tools like concentration coefficients and marginal redistribution analysis to show how indirect taxes, when not offset by transfers, can exacerbate inequality. Overall, the redistributive impact of Georgia’s tax system is limited, and in the absence of targeted transfers, would leave poorer populations worse off. The takeaway is clear: taxes alone, especially if skewed towards consumption, are not sufficient to foster equitable growth.

Testing the System: What Happens When Assumptions Shift?

To enhance the robustness of its conclusions, the report includes two significant sensitivity analyses. The first tests an adjusted assumption about informality in PIT collection. In the baseline model, informality is assumed for second jobs only; in the revised model, it applies to primary employment as well. This change reduces PIT revenue estimates by GEL 477 million, about 65% of the baseline, and slightly reduces the tax burden on low-income households, though it does not dramatically shift inequality outcomes.

The second sensitivity scenario addresses undercoverage in the Targeted Social Assistance (TSA) program. Originally, TSA coverage in the survey was around 82 percent. By using a probit regression model based on household characteristics, the authors simulate full coverage of the estimated 118,000 eligible households. This adjustment results in greater poverty reduction: from 17.1% in the baseline to 18.8% under the expanded TSA scenario. Notably, this change has little effect on measured inequality, underscoring that poverty and inequality do not always move in tandem.

The World Bank’s Navigating Fiscal Realities for Equitable Growth in Georgia offers a compelling blueprint for how smart, data-informed fiscal policy can be a powerful tool for equity. It validates the importance of targeted transfers and social protection, cautions against over-reliance on regressive taxes, and highlights the need for better coverage and formalization. Georgia’s path toward inclusive development may still face institutional and economic challenges, but this report makes one thing clear: the tools for equitable progress are already within reach , it’s now a matter of how they are used.