Teachings from Japan's recent development and debt levels for sustainable growth

Abstract: Debt, and the trend of increasing it for policy goals, is discussed. Japan has been at the forefront with developing its debt-to-GDP ratio, therefore we aim to explore the relation to economic growth and its implications through the lens of Japan. We first explore the relationship between economic growth and change of debt through panel data and then compare our findings to the case of Japan. We chose the period of 1990 to 2019 to select the most relevant time period for Japan’s development of debt. What we found is that debt has an adverse effect on economic growth, and in Japan’s case the negative correlation is even steeper. What we have found is that it has served the function of a policy tool, enabled by the especially high degree of domestic and central bank holdings. As for the structural implications, using the altered index based on government goals, we have found the index to be beneficial towards the economy while serving as a buffer to the debt conditions.