Scottish city circulating low gags (7)
I believe the answer is:
glasgow
'scottish city' is the definition.
(I've seen this before)
'circulating low gags' is the wordplay.
'circulating' is an anagram indicator.
'low'+'gags'='lowgags'
'lowgags' with letters rearranged gives 'GLASGOW'.
(Other definitions for glasgow that I've seen before include "Scotland's largest city" , "Sauchiehall St. city" , "City of bad low gags" , "City of strangely low gags" , "Scottish city on the Clyde" .)