Abstract
<title>Abstract</title> <p>Japan faces the dual challenge of maintaining fiscal sustainability while pursuing an ambitious transition towards a low-carbon economy. Substantial investment in renewable energy, green infrastructure, and low-carbon technology has increased interest in the potential role of public borrowing in financing green transformation. This study examines whether public debt can support Japan's green transition through its relationship with economic growth, CO₂ emissions, and renewable energy. Gross savings and trade openness are included as control variables. The study applies linear autoregressive distributed lag (ARDL) and nonlinear autoregressive distributed lag (NARDL) approaches to assess the long-run relationship and the effects of positive and negative debt changes on economic growth. The findings confirm the existence of long-run relationships in both models. However, public debt does not significantly affect economic growth, while positive and negative debt shocks also remain insignificant. The Wald test provides no strong evidence of asymmetric debt effects at the 5 percent significance level. CO₂ emissions positively and significantly affect economic growth, whereas renewable energy has a positive but insignificant effect. Gross savings and trade openness emerge as significant positive determinants of growth. The findings provide limited evidence that public debt has directly supported Japan's green transition. Instead, the effectiveness of public borrowing appears to depend on the allocation of debt-financed expenditure towards renewable energy, low-carbon technology, and productive green investment. The study highlights the importance of linking public borrowing with measurable green investment outcomes to support sustainable economic transformation.</p>