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Energy Cost Pass-Through in US Manufacturing: Estimates and Implications for Carbon Taxes

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  • Sharat Ganapati
  • Joseph S. Shapiro
  • Reed Walker

Abstract

We study how changes in energy input costs for US manufacturers affect the relative welfare of manufacturing producers and consumers (i.e., incidence). We also develop a methodology to estimate the incidence of input taxes that accounts for incomplete pass-through, imperfect competition, and substitution among inputs. For the several industries we study, 70 percent of energy price-driven changes in input costs get passed through to consumers in the short to medium run. The share of the welfare cost that consumers bear is 25–75 percent smaller (and the share producers bear is larger) than models featuring complete pass-through and perfect competition would suggest.

Suggested Citation

  • Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2020. "Energy Cost Pass-Through in US Manufacturing: Estimates and Implications for Carbon Taxes," American Economic Journal: Applied Economics, American Economic Association, vol. 12(2), pages 303-342, April.
  • Handle: RePEc:aea:aejapp:v:12:y:2020:i:2:p:303-42
    DOI: 10.1257/app.20180474
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    Cited by:

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    3. Asatryan, Zareh & Gomtsyan, David, 2020. "The incidence of VAT evasion," ZEW Discussion Papers 20-027, ZEW - Leibniz Centre for European Economic Research.
    4. Catherine Hausman, 2019. "Shock Value: Bill Smoothing and Energy Price Pass‐Through," Journal of Industrial Economics, Wiley Blackwell, vol. 67(2), pages 242-278, June.
    5. Hintermann, Beat & Zarkovic, Maja & Di Maria, Corrado & Wagner, Ulrich J., 2020. "The effect of climate policy on productivity and cost pass-through in the German manufacturing sector," Working papers 2020/11, Faculty of Business and Economics - University of Basel.
    6. Erich Muehlegger & Richard L. Sweeney, 2017. "Pass-Through of Own and Rival Cost Shocks: Evidence from the U.S. Fracking Boom," NBER Working Papers 24025, National Bureau of Economic Research, Inc.
    7. Felix Montag & Alina Sagimuldina & Monika Schnitzer, 2021. "Does Tax Policy Work When Consumers Have Imperfect Price Information? Theory and Evidence," CESifo Working Paper Series 9138, CESifo.

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    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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