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

Sharat Ganapati, Joseph Shapiro and Reed Walker

No 2038R3, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper studies how changes in energy input costs for U.S. manufacturers affect the relative welfare of manufacturing producers and consumers (i.e., incidence). In doing so, we develop a novel partial equilibrium methodology designed to estimate the incidence of input taxes. This method simultaneously accounts for three determinants of incidence that are typically studied in isolation: incomplete pass-through of input costs, differences in industry competitiveness, and substitution amongst inputs used for production. We apply this methodology to a set of U.S. manufacturing industries for which we observe plant-level unit prices and input choices. We find that about 70 percent of energy price-driven changes in input costs are passed through to consumers. We combine industry-specific pass-through rates with estimates of industry competitiveness to show that the share of welfare cost borne by consumers is 25-75 percent smaller (and the share borne by producers is correspondingly larger) than models featuring complete pass-through and perfect competition would suggest.

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 2018-03
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 (3)

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