The Incidence of Carbon Taxes in U.S. Manufacturing: Lessons from Energy Cost Pass-through

Sharat Ganapati, Joseph Shapiro and Reed Walker

No 2038R, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper estimates how increases in production costs due to energy inputs affect consumer versus producer surplus (i.e., incidence). In doing so, we develop a general methodology to measure the incidence of changes in input costs that can account for three first-order issues: factor substitution amongst inputs used for production, incomplete pass-through of input costs, and industry competitiveness. We apply this methodology to a set of U.S. manufacturing industries for which we observe plant-level output prices and input costs. We find that about 70 percent of energy price-driven changes in input costs are passed through to consumers. This implies that the share of welfare cost borne by consumers is 25-75 percent smaller (and the share borne by producers is correspondingly larger) than most existing work assumes.

Keywords: Pass-through; incidence; energy prices; productivity; climate change (search for similar items in EconPapers)
JEL-codes: H22 H23 Q40 Q54 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2016-05, Revised 2017-01
New Economics Papers: this item is included in nep-ene, nep-env, nep-reg and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: The Incidence of Carbon Taxes in U.S. Manufacturing: Lessons from Energy Cost Pass-through (2018)
Working Paper: The Incidence of Carbon Taxes in U.S. Manufacturing: Lessons from Energy Cost Pass-through (2017)
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