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

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

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, 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

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