The Japanese economy has suffered from the prolonged recession since the bubble economy collapsed in 1990. The Japanese government adopted the traditional fiscal policy in the mid 90's but the economy did not recover. Neoclassical economists insist that the fiscal policy has no role to stimulate the economy and the marketoriented economic reform which pursues efficiency should be carried out. In fact, reduction of government regulations and promotion of economic liberalization have become a global trend since the 1980s. In Japan, the Koizumi cabinet has carried out economic reform. On the contrary, many Keynesian economists insist that the counter-cyclical fiscal policy has an effect to stabilize the economy. Asada (1987) developed a Kaldorian cycle model which incorporates the budget constraint of government and showed the counter-cyclical fiscal policy is effective to stabilize the economy under certain conditions in the model. Zhang (1990) showed the existence of limit cycles by applying Hopf bifurcation theorem in the model developed by Asada (1987). Ninomiya (2001.a) showed the countercyclical fiscal policy is effective to stabilize the economy even if the economy is in financial instability. However, these studies did not consider the debt burden of firms. In fact, the Japanese economy has suffered from the cumulative interest-bearing debt since the bubble economy collapsed. The problem of the non-performing loan is pointed out as one of the main reasons for the prolonged recession in Japan. Ninomiya (2001.b) took the dynamic equation of debt burden into account and showed a Minskian cycle in a nonlinear dynamic model. However, he did not examine the effect of the counter-cyclical fiscal policy. Asada (2003) and Ninomiya (2005) took the interest-bearing debt into account and discussed the financial instability and cycle. Furthermore, Ninomiya (2005) showed the interest rate target has an effect when the cumulative interest-bearing debt makes the economy unstable. However, both Asada (2003) and Ninomiya (2005) did not examine the effect of the counter-cyclical fiscal policy. In this paper, we shall take both the dynamic equation of debt burden and the budget constraint of government into account in a nonlinear dynamic model and discuss a financial cycle. Furthermore, we shall examine the effect of the counter-cyclical fiscal policy when the cumulative interest-bearing debt makes the economy unstable. The main result of this paper is that the counter-cyclical fiscal policy might not have an effect to make the economy stable when the cumulative interest-bearing debt makes the economy unstable. We might be able to call this situation "debt burden trap." This also means that we could not support the market-oriented economic reform based on neoclassical economics because of the failure of traditional fiscal policy based on Keynesian economics.