Who did the ethanol tax credit benefit? An event analysis of subsidy incidence

Journal Article (Journal Article)

At the end of 2011, the Volumetric Ethanol Excise Tax Credit (VEETC), which had subsidized the blending of ethanol in gasoline, was allowed to expire. During its tenure, the subsidy was the subject of intense scrutiny concerning who benefited from its existence. Using commodity price data, we estimate the subsidy incidence accruing to corn farmers, ethanol producers, gasoline blenders, and gasoline consumers around the time of expiration. Our empirical approach contributes methodologically to the event studies literature by analyzing futures contract prices (as opposed to spot prices) when possible. Ultimately, we find compelling evidence that, at the date of VEETC expiration, ethanol producers captured about 25¢ of the 45¢ subsidy per gallon of ethanol blended. We find suggestive, albeit inconclusive, evidence that a portion of this benefit (about 5¢ per gallon) was passed further upstream from ethanol producers to corn farmers. Most of the remainder seems most likely to have been captured by the blenders themselves. On the petroleum side, we find no evidence that oil refiners captured any part of the subsidy. We also find no evidence that the subsidy was passed downstream to gasoline consumers in the form of lower gasoline prices.

Full Text

Duke Authors

Cited Authors

  • Bielen, DA; Newell, RG; Pizer, WA

Published Date

  • May 1, 2018

Published In

Volume / Issue

  • 161 /

Start / End Page

  • 1 - 14

International Standard Serial Number (ISSN)

  • 0047-2727

Digital Object Identifier (DOI)

  • 10.1016/j.jpubeco.2018.03.005

Citation Source

  • Scopus