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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.
Ganapati, Sharat; Shapiro, Joseph S.; and Walker, Reed, "The Incidence of Carbon Taxes in U.S. Manufacturing: Lessons from Energy Cost Pass-through" (2016). Cowles Foundation Discussion Papers. 2488.