Abstract
SUMMARYElectronic gambling (‘slot’) machines are a key component of the global gambling industry. We introduce a theoretical framework which shows that under reasonable assumptions, shifting from a per‐machine licence fee to a gross profits tax (GPT) on machine revenue can help to resolve policy tensions between industry profitability, economic growth and government revenue. We test the theory using data on recent changes to gambling taxation in the UK, in particular the move to a gross profits‐based Machine Games Duty (MGD). Our results reveal that the shift from licence fees to a revenue‐neutral MGD led to a significant increase in the number of machines, as predicted by the theory, and in machine revenue. These results provide useful guidance for all parties involved in the gambling taxation debate, especially those jurisdictions that are considering or are open to a change to their gambling tax system.
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