Is the Welfare State Compatible with a Green Transition? Evidence from the US Consumer Expenditure Survey

In this paper, we explore the interplay between welfare states and environmental sustainability, addressing a critical question in political economy: can robust welfare systems support ecological preservation, or do they exacerbate environmental degradation? Traditional political economy frameworks prioritize economic growth and industrial development as pathways to collective prosperity, often sidelining ecological concerns. However, with the accelerating climate crisis and its disproportionate impact on vulnerable populations, the compatibility of social welfare and climate goals demands urgent attention. While some argue that welfare states—with their long-term policymaking capacity and redistributive mechanisms—are well-positioned to implement climate mitigation policies, cross-country evidence reveals contradictions. High-emission levels in Nordic and Continental welfare states challenge the assumption of inherent ‘eco-social synergy’. To disentangle this relationship, we investigate two core dimensions: the association between welfare state generosity and environmental impact, and the distributive effects of climate mitigation policies. We advance the literature by breaking down the eco-social nexus into discrete mechanisms, carefully distinguishing policy outputs from outcomes and situating findings within broader economic and structural contexts. Building on insights from Polanyi’s work on market (dis)embeddedness, our theoretical framework integrates social redistribution, environmental preservation, and economic development. By combining macro-level evidence with household-level data, we illuminate pathways toward an ‘eco-welfare state’ that reconciles human needs with planetary boundaries. Empirically, we test our framework on microdata from the U.S. Consumer Expenditure Survey (CEX), and examine how welfare subsidies influence household emissions through consumption behavior. Leveraging the American Rescue Plan of 2021 as an exogenous shock to welfare benefits, we assess the causal impact of increased redistribution on household carbon footprints. This approach allows us to unpack the mechanisms through which welfare policies shape consumption patterns and their environmental implications.