Taxation and the Demand for Gambling: New Evidence from the United Kingdom.

In October 2001, the U.K. government implemented a dramatic shift in the taxation of gambling, resulting in a substantial decline in taxes levied on U.K. bookmakers. Using data before and after this event, we present econometric evidence on the demand response to this tax reduction. Our results suggest that the demand for bookmaker gambling is highly sensitive to taxation rates and that the decline in the rate of taxation led to a large increase in the demand for on-shore betting. We also find some evidence of price-induced substitution across different segments of the gambling industry. The U.K. policy initiative may provide useful information for policy makers in other countries who are contemplating changes in gambling taxation.