Download this Paper Open PDF in Browser

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

50 Pages Posted: 17 Apr 2017  

Sharat Ganapati

Dartmouth College, Department of Economics

Joseph S. Shapiro

Yale University, Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Reed Walker

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

Multiple version iconThere are 2 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, 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

Dartmouth College, Department of Economics ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.sganapati.com

Joseph S. Shapiro (Contact Author)

Yale University, Department of Economics ( email )

37 Hillhouse Ave, Room 34
New Haven, CT 06510
United States
203-432-5075 (Phone)
203-432-6323 (Fax)

HOME PAGE: http://economics.yale.edu/people/joseph-s-shapiro

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
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

Paper statistics

Downloads
26
Abstract Views
135