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

50 Pages Posted: 14 Jan 2017

See all articles by Sharat Ganapati

Sharat Ganapati

Georgetown University

Joseph S. Shapiro

University of California, Berkeley; National Bureau of Economic Research (NBER)

Reed Walker

National Bureau of Economic Research (NBER); University of California, Berkeley - Haas School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: January 13, 2017

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

JEL Classification: H22, H23, Q40, Q54

Suggested Citation

Ganapati, Sharat and Shapiro, Joseph S. and Walker, Reed and Walker, Reed, The Incidence of Carbon Taxes in U.S. Manufacturing: Lessons from Energy Cost Pass-Through (January 13, 2017). Cowles Foundation Discussion Paper No. 2038R, Available at SSRN: https://ssrn.com/abstract=2899124 or http://dx.doi.org/10.2139/ssrn.2899124

Sharat Ganapati

Georgetown University ( email )

Washington, DC 20057
United States

Joseph S. Shapiro (Contact Author)

University of California, Berkeley ( email )

HOME PAGE: http://joseph-s-shapiro.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Reed Walker

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building
Berkeley, CA 94720
United States

HOME PAGE: http://faculty.haas.berkeley.edu/rwalker/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
64
Abstract Views
743
Rank
262,708
PlumX Metrics