Publication Date: May 2016
Revision Date: March 2018
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.
Pass-through, Incidence, Energy prices, Productivity, Climate change
JEL Classification Codes: H22, H23, Q40, Q54