NATIONAL BUREAU OF ECONOMIC RESEARCH
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Energy Cost Pass-Through in U.S. Manufacturing: Estimates and Implications for Carbon Taxes

Sharat Ganapati, Joseph S. Shapiro, Reed Walker

NBER Working Paper No. 22281
Issued in May 2016, Revised in July 2019
NBER Program(s):Environment and Energy Program, Industrial Organization Program, International Trade and Investment Program, Public Economics Program, Productivity, Innovation, and Entrepreneurship Program

We study how changes in energy input costs for U.S. 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 which accounts for incomplete pass-through, imperfect competition, and substitution amongst 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.

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Document Object Identifier (DOI): 10.3386/w22281

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