Many governments now face a difficult double challenge: improving social wellbeing while responding to climate change, biodiversity loss and other environmental pressures. A growing body of research argues that meeting human needs within planetary boundaries may require economies to become less dependent on economic growth. Yet modern welfare states, including pensions, healthcare and social protection systems, have largely developed as part of growth-based economies and often rely on growth-related tax revenues. This raises a critical question for policymakers: if societies seek to reduce environmental pressures and move towards post-growth pathways, how can welfare systems be financed? A new study published in New Political Economy examines this question.
In this study, we review proposals for financing sustainable welfare from the post-growth and ecological macroeconomics literature and assess them against four criteria: 1) whether they support growth independence of welfare systems, 2) whether they reduce inequality, 3) whether they help meet people’s needs, and 4) whether they contribute to reducing environmental harm.
The study begins from the observation that contemporary welfare states and economic growth are closely connected. If productivity increases, economic growth is needed to keep employment levels, and therefore tax revenues that depend on employment, stable. At the same time, welfare systems support growth by improving health, education and labour market participation, while helping maintain social stability. We argue that this mutual dependence presents a challenge for any transition towards economies that prioritise wellbeing and ecological sustainability over the continued expansion of growth domestic product (GDP).
To identify proposals for financing welfare without growth, we conducted a review of peer-reviewed literature from the fields of post-growth economics, sustainable welfare and ecological macroeconomics. We identified six broad approaches: progressive income taxation, progressive wealth taxation, environmental taxes, redirecting existing subsidies, government spending financed through sovereign money creation, and complementary or community currencies.
We then assess these proposals against the four criteria listed above. Progressive taxes on income and wealth emerge as some of the strongest options from a social justice perspective. The authors find that these taxes can help redistribute resources and reduce inequality while supporting the financing of welfare services. Wealth taxes are seen as particularly relevant in the literature because they target accumulated assets rather than only current earnings. Taxes on environmentally harmful luxury consumption, such as frequent flying or other resource-intensive activities, are also identified as potentially compatible with both social and environmental objectives.
However, environmental taxes on essentials, for instance home energy, present more complex trade-offs. While these taxes can help reduce environmental impacts, they also tend to place disproportionate burdens on lower-income households. The study therefore highlights the importance of combining such taxes with compensatory measures, such as universal basic services, direct transfers or targeted support for vulnerable groups.
We also discuss proposals associated with Modern Monetary Theory and related heterodox approaches, which argue that governments issuing their own sovereign currencies can finance public spending through money creation rather than relying solely on taxation or borrowing. While this may reduce dependence on growth-driven tax revenues, the study notes that real constraints remain, including inflation risks in a context of ecological limits. However, inflation risks could be managed through targeted taxation and measures that stabilise prices of necessities.
A central conclusion of the paper is that no single financing mechanism fully resolves the growth dependence of welfare systems. Tax revenues, asset values and economic activity remain linked in various ways to the size of the economy. Instead, the authors argue that financing sustainable welfare will likely require combinations of measures. These could include broader tax bases, progressive redistribution, subsidy reform, targeted public spending, policies that reduce environmental harm, and measures that prevent social problems before they arise. The study also emphasises the importance of directing a larger share of economic resources towards meeting human needs rather than supporting environmentally damaging or luxury consumption.
Overall, the review suggests that achieving welfare for all within planetary boundaries is not simply a matter of finding a new source of public revenue. Rather, it may require wider economic transformation, including changes in how societies organise production and distribute resources, and define prosperity itself.
Access the full article in New Political Economy:
The full article may be cited as:
Langridge, Nick; Büchs, Milena, 2026. Financing ‘sustainable welfare’: a critical review of the options. New Political Economy, 1–21. https://doi.org/10.1080/13563467.2026.2659887