[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/11908.html
   My bibliography  Save this paper

Pass-Through as a Test for Market Power: An Application to Solar Subsidies

Author

Listed:
  • van Benthem, Arthur
  • Pless, Jacquelyn
Abstract
We formalize pass-through over-shifting as a simple yet under-utilized test for market power. We apply this test in the market for solar energy. Specifically, we estimate the pass-through of solar subsidies to solar system prices using rich micro-level transaction and subsidy data from California. Buyers of solar systems capture nearly the full subsidy, while there is more-than-complete pass-through to lessees. We conclude that solar markets are imperfectly competitive by ruling out alternative explanations for over-shifting, and reinforce this conclusion with a test of solar demand curvature. This procedure can serve to detect market power beyond the solar market.

Suggested Citation

  • van Benthem, Arthur & Pless, Jacquelyn, 2017. "Pass-Through as a Test for Market Power: An Application to Solar Subsidies," CEPR Discussion Papers 11908, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11908
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP11908
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Marion, Justin & Muehlegger, Erich, 2011. "Fuel tax incidence and supply conditions," Journal of Public Economics, Elsevier, vol. 95(9), pages 1202-1212.
    2. Delipalla, Sofia & Keen, Michael, 1992. "The comparison between ad valorem and specific taxation under imperfect competition," Journal of Public Economics, Elsevier, vol. 49(3), pages 351-367, December.
    3. Emi Nakamura & Dawit Zerom, 2010. "Accounting for Incomplete Pass-Through," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(3), pages 1192-1230.
    4. Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2016. "Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing," Working Papers 16-27, Center for Economic Studies, U.S. Census Bureau.
    5. Arthur van Benthem & Kenneth Gillingham & James Sweeney, 2008. "Learning-by-Doing and the Optimal Solar Policy in California," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 131-152.
    6. Slemrod, Joel, 2006. "The Role of Misconceptions in Support for Regressive Tax Reform," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(1), pages 57-75, March.
    7. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    8. Young, Douglas J & Bieli´nska-Kwapisz, Agnieszka, 2002. "Alcohol Taxes and Beverage Prices," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(1), pages 57-73, March.
    9. Young, Douglas J & Bieli´nska-Kwapisz, Agnieszka, 2002. "Alcohol Taxes and Beverage Prices," National Tax Journal, National Tax Association, vol. 55(N. 1), pages 57-73, March.
    10. Liran Einav & Amy Finkelstein & Mark R. Cullen, 2010. "Estimating Welfare in Insurance Markets Using Variation in Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 877-921.
    11. Severin Borenstein, 2017. "Private Net Benefits of Residential Solar PV: The Role of Electricity Tariffs, Tax Incentives, and Rebates," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(S1), pages 85-122.
    12. Anderson, Simon P. & de Palma, Andre & Kreider, Brent, 2001. "Tax incidence in differentiated product oligopoly," Journal of Public Economics, Elsevier, vol. 81(2), pages 173-192, August.
    13. Jonathan E. Hughes & Molly Podolefsky, 2015. "Getting Green with Solar Subsidies: Evidence from the California Solar Initiative," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(2), pages 235-275.
    14. Wojciech Kopczuk & Justin Marion & Erich Muehlegger & Joel Slemrod, 2016. "Does Tax-Collection Invariance Hold? Evasion and the Pass-Through of State Diesel Taxes," American Economic Journal: Economic Policy, American Economic Association, vol. 8(2), pages 251-286, May.
    15. Meghan Busse & Jorge Silva-Risso & Florian Zettelmeyer, 2006. "$1,000 Cash Back: The Pass-Through of Auto Manufacturer Promotions," American Economic Review, American Economic Association, vol. 96(4), pages 1253-1270, September.
    16. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    17. Kenneth Gillingham & Tsvetan Tsvetanov, 2019. "Hurdles and steps: Estimating demand for solar photovoltaics," Quantitative Economics, Econometric Society, vol. 10(1), pages 275-310, January.
    18. Seade, J., 1985. "Profitable Cost Increases and the Shifting of Taxation: Equilibrium Responses of Markets in Oligopoly," Economic Research Papers 269225, University of Warwick - Department of Economics.
    19. Koichiro Ito, 2015. "Asymmetric Incentives in Subsidies: Evidence from a Large-Scale Electricity Rebate Program," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 209-237, August.
    20. West, Sarah E., 2004. "Distributional effects of alternative vehicle pollution control policies," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 735-757, March.
    21. Besley, Timothy J. & Rosen, Harvey S., 1999. "Sales Taxes and Prices: An Empirical Analysis," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 157-178, June.
    22. Michael L. Katz & Harvey S. Rosen, 1985. "Tax Analysis in an Oligopoly Model," Public Finance Review, , vol. 13(1), pages 3-20, January.
    23. Seade, J, 1985. "Profitable Cost Increases and the Shifting of Taxation : Equilibrium Response of Markets in Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 260, University of Warwick, Department of Economics.
    24. Donald S. Kenkel, 2005. "Are Alcohol Tax Hikes Fully Passed Through to Prices? Evidence from Alaska," American Economic Review, American Economic Association, vol. 95(2), pages 273-277, May.
    25. Ashok Kaul & Gregor Pfeifer & Stefan Witte, 2016. "The incidence of Cash for Clunkers: Evidence from the 2009 car scrappage scheme in Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(6), pages 1093-1125, December.
    26. Gulati, Sumeet & McAusland, Carol & Sallee, James M., 2017. "Tax incidence with endogenous quality and costly bargaining: Theory and evidence from hybrid vehicle subsidies," Journal of Public Economics, Elsevier, vol. 155(C), pages 93-107.
    27. Barzel, Yoram, 1976. "An Alternative Approach to the Analysis of Taxation," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1177-1197, December.
    28. Arie Beresteanu & Shanjun Li, 2011. "Gasoline Prices, Government Support, And The Demand For Hybrid Vehicles In The United States," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 161-182, February.
    29. James M. Sallee, 2011. "The Surprising Incidence of Tax Credits for the Toyota Prius," American Economic Journal: Economic Policy, American Economic Association, vol. 3(2), pages 189-219, May.
    30. Barnett, Paul G. & Keeler, Theodore E. & Hu, Teh-wei, 1995. "Oligopoly structure and the incidence of cigarette excise taxes," Journal of Public Economics, Elsevier, vol. 57(3), pages 457-470, July.
    31. Robert A. Ritz, 2015. "The Simple Economics of Asymmetric Cost Pass-Through," Cambridge Working Papers in Economics 1515, Faculty of Economics, University of Cambridge.
    32. Stern, Nicholas, 1987. "The effects of taxation, price control and government contracts in oligopoly and monopolistic competition," Journal of Public Economics, Elsevier, vol. 32(2), pages 133-158, March.
    33. Boomhower, Judson & Davis, Lucas W., 2014. "A credible approach for measuring inframarginal participation in energy efficiency programs," Journal of Public Economics, Elsevier, vol. 113(C), pages 67-79.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dong, Changgui & Wiser, Ryan & Rai, Varun, 2018. "Incentive pass-through for residential solar systems in California," Energy Economics, Elsevier, vol. 72(C), pages 154-165.
    2. Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2016. "The Incidence of Carbon Taxes in U.S. Manufacturing: Lessons from Energy Cost Pass-through," Cowles Foundation Discussion Papers 2038R3, Cowles Foundation for Research in Economics, Yale University, revised Mar 2018.
    3. 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.
    4. Panayiota Lyssiotou & Elena Savva, 2021. "Who pays taxes on basic foodstuffs? Evidence from broadening the VAT base," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(1), pages 212-247, February.
    5. Asatryan, Zareh & Gomtsyan, David, 2020. "The incidence of VAT evasion," ZEW Discussion Papers 20-027, ZEW - Leibniz Centre for European Economic Research.
    6. Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2016. "Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing," Working Papers 16-27, Center for Economic Studies, U.S. Census Bureau.
    7. Finkelstein, Eric A. & Zhen, Chen & Bilger, Marcel & Nonnemaker, James & Farooqui, Assad M. & Todd, Jessica E., 2013. "Implications of a sugar-sweetened beverage (SSB) tax when substitutions to non-beverage items are considered," Journal of Health Economics, Elsevier, vol. 32(1), pages 219-239.
    8. Pranvera Shehaj & Martin Zagler, 2023. "Motor Vehicle Registration Taxes (MVRT) across EU countries: MNEs’ profitability and the role of market concentration," European Journal of Law and Economics, Springer, vol. 56(1), pages 155-198, August.
    9. Clément Carbonnier, 2011. "Shifting on prices of per unit and ad valorem consumption taxes, estimation on prices of alcoholic beverages in France," THEMA Working Papers 2011-20, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    10. Nicoletta Berardi & Patrick Sevestre & Marine Tépaut & Alexandre Vigneron, 2016. "The impact of a ‘soda tax’ on prices: evidence from French micro data," Applied Economics, Taylor & Francis Journals, vol. 48(41), pages 3976-3994, September.
    11. Aria Ardalan & Sebastian G. Kessing, 2021. "Tax pass-through in the European beer market," Empirical Economics, Springer, vol. 60(2), pages 919-940, February.
    12. R. Emre Aytimur, 2023. "Salience and horizontal differentiation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(1), pages 60-86, February.
    13. Rachel Griffith & Lars Nesheim & Martin O'Connell, 2018. "Income effects and the welfare consequences of tax in differentiated product oligopoly," Quantitative Economics, Econometric Society, vol. 9(1), pages 305-341, March.
    14. Fullerton, Don & Metcalf, Gilbert E., 2002. "Tax incidence," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872, Elsevier.
    15. Michele Santoni, 2017. "Protective Excise Taxation," Journal of Industry, Competition and Trade, Springer, vol. 17(4), pages 421-445, December.
    16. Clément Carbonnier, 2011. "Shifting on prices of per unit and ad valorem consumption taxes," Working Papers halshs-00872477, HAL.
    17. Carbonnier, Clement, 2007. "Who pays sales taxes? Evidence from French VAT reforms, 1987-1999," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1219-1229, June.
    18. Miravete, Eugenio J. & Seim, Katja & Thurk, Jeff, 2023. "Pass-through and tax incidence in differentiated product markets," International Journal of Industrial Organization, Elsevier, vol. 90(C).
    19. Delipalla, Sophia & O'Donnell, Owen, 2001. "Estimating tax incidence, market power and market conduct: The European cigarette industry," International Journal of Industrial Organization, Elsevier, vol. 19(6), pages 885-908, May.
    20. George Obeng, 2018. "Value Added Tax and Vat Flat Rate Scheme in Ghana, Any Cascading Implications," Asian Development Policy Review, Asian Economic and Social Society, vol. 6(4), pages 213-225, December.

    More about this item

    Keywords

    Solar subsidy; Pass-through; Over-shifting; Demand curvature; market power; Third-party ownership; Buy vs. lease;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:11908. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.