Charles T. Clotfelter * Duke University
With deep roots in history and dozens of modern manifestations, gambling is an activity that governments have typically either forbidden or taxed. Governments in most parts of the world use it to raise revenue, though the amounts raised are paltry in comparison with the mainstays of modern tax systems. As a form of personal expenditure, gambling has grown rapidly in many countries over the past four decades. This growth has been fuelled by new forms of commercial gambling and by increasing social acceptance of the activity itself. Because gambling has historically existed under a cloud of unrespectability, if not outright condemnation, and because governments have correspondingly outlawed it, or legalized it only with reluctance, the point must be made from the start that its taxation cannot be separated wholly from its legalization and regulation. The history of governments' policies towards gambling suggests that most societies cannot tolerate legalization of gambling without its regulation. So, while it is not the purpose of the present chapter to discuss aspects of the regulation of gambling, it will be important in applying norms of welfare economics to gambling taxation to recall that taxation is inextricably bound up with legalization and regulation.
As one chapter in a volume examining various aspects of excise taxation, the present chapter addresses the taxation of gambling. But not all the revenue-raising devices associated with gambling are strictly excise taxes, although most serve the same function. For that reason, this chapter considers not only conventionally defined excise taxes (levied on expenditures by betters or on receipts by operators) but also the profits made by government-operated gambling. By conventional public accounting standards, such profits are not strictly taxes. But since they serve essentially the same function, they are referred to in the present chapter as implicit taxes. 1 These distinctions are discussed at greater length in this chapter.