This article re-examines sovereign debt sustainability within a modern macro-financial framework that distinguishes mechanical debt arithmetic from policy-driven fiscal behaviour. While a negative interest–growth differential (r – g < 0) is a necessary condition for debt stabilization in the canonical debt identity, it is not sufficient when the fiscal policy operates under structurally persistent deficits. Using Japan over 1980–2023 as a long-horizon benchmark, the study combines conceptual insights with an accounting decomposition separating snowball effects from primary-balance contributions. Despite persistently favourable r – g differentials, Japan’s debt ratio rose steadily due to sustained primary deficits and crisis-related expansions. A Bohn-type fiscal reaction function shows a stabilizing but modest primary surplus response to rising debt, insufficient to halt long-run accumulation. The article also documents declining fiscal effectiveness as cyclical slack narrowed and supply constraints intensified. Overall, the findings emphasize institutional structure and macro-financial regimes over purely arithmetic interpretations of debt sustainability.
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