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Price of oil and recessions – reason to go for cap-and-share

Very useful studies showing links between high oil price and recessions. The relationship to watch is the price of oil relative to income. Important to understand as this means that a cap-and share/dividend fiscal mechanism will not bring-on or deepen a recession but a carbon tax without distribution of the receipts will!

Further Evidence of the Influence of Energy on the U.S. Economy

“Hamilton acknowledges early on in his report that the proportion of income spent on energy is an important determinant of consumer spending patterns. The theory is fairly simple: if energy expenditures rise faster than income, then the share of income for other things besides purchasing energy must decline, such as spending on mortgage payments for a second home in Las Vegas. In other words, rapid, large increases in energy prices may curtail consumption enough to trigger larger financial problems – like the bursting of a housing bubble – that when aggregated across an economy may cause or contribute significantly to a recession.”

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