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

50 Pages Posted: 15 Mar 2018

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: March 14, 2018

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

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 (March 14, 2018). Cowles Foundation Discussion Paper No. 2038R3, Available at SSRN: https://ssrn.com/abstract=3140739 or http://dx.doi.org/10.2139/ssrn.3140739

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
30
Abstract Views
391
PlumX Metrics