Document Type
Discussion Paper
Publication Date
5-1-2016
CFDP Number
2038R3
CFDP Revision Date
2018-03-01
CFDP Pages
49
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.
Recommended Citation
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.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/2488