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

50 Pages Posted: 17 Apr 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: April 15, 2017

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 partial equilibrium methodology to estimate the incidence of input taxes that can simultaneously account for three determinants of incidence that are typically studied in isolation: incomplete pass-through of input costs, differences in industry competitiveness, and factor 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

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 (April 15, 2017). Cowles Foundation Discussion Paper No. 2038R2, Available at SSRN: https://ssrn.com/abstract=2953941 or http://dx.doi.org/10.2139/ssrn.2953941

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

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