A policy response to the e-commerce revolution: The case of betting taxation in the UK

Several environmental changes in the 1990s-including the introduction of a national lottery, the rise of Internet gambling, and the reduction of trade barriers within the EU- induced the UK government to initiate a large-scale review of betting duty. As a result of this review, the government recently announced a significant reduction in betting taxes. They also decided to replace the current general betting duty (GBD), levied as a proportion of betting stakes, with a gross profits tax (GPT), based on the net revenue of bookmakers. We examine the economic rationale behind these decisions and demonstrate how these tax changes have broad implications regarding optimal levels of taxation for other sources of government revenue.