The fiscal gap is a measure of a government's total indebtedness proposed by economists Laurence Kotlikoff and Alan Auerbach, who define it as the difference between the present value of all of government's projected financial obligations, including future expenditures, including servicing outstanding official federal debt, and the present value of all projected future tax and other receipts, including income accruing from the government's current ownership of financial assets.
According to Kotlikoff and Auerbach, "fiscal gap accounting" and "generational accounting" reports have been done for roughly 40 developed and developing countries either by their treasury departments, finance ministries, or central banks, or by the IMF, the World Bank, or other international agencies, or by academics and think tanks.
[citation needed] Eliminating the entire U.S. fiscal gap through revenue alone would require a permanent 64% increase in all federal taxes.
[citation needed] Alternatively, closing the gap through spending reductions alone would require a permanent 40% cut in all federal purchases and transfer payments.
[2] The proposed "fiscal gap" accounting method has been criticized as fundamentally flawed by economists Dean Baker,[3] Bradford DeLong,[4] and Paul Krugman.