Gini coefficient

In economics, the Gini coefficient (sometimes expressed as a Gini ratio or a normalized Gini index) ( i/ jee-nee) is a measure of statistical dispersion intended to represent the income or wealth distribution of a nation's residents, and is the most commonly used measure of inequality. It was developed by the Italian statistician and sociologist Corrado Gini and published in his 1912 paper Variability and Mutability ( Italian: Variabilità e mutabilità). [1] [2]

The Gini coefficient measures the inequality among values of a frequency distribution (for example, levels of income). A Gini coefficient of zero expresses perfect equality, where all values are the same (for example, where everyone has the same income). A Gini coefficient of 1 (or 100%) expresses maximal inequality among values (e.g., for a large number of people, where only one person has all the income or consumption, and all others have none, the Gini coefficient will be very nearly one). [3] [4] However, a value greater than one may occur if some persons represent negative contribution to the total (for example, having negative income or wealth). For larger groups, values close to or above 1 are very unlikely in practice. Given the normalization of both the cumulative population and the cumulative share of income used to calculate the Gini coefficient, the measure is not overly sensitive to the specifics of the income distribution, but rather only on how incomes vary relative to the other members of a population. The exception to this is in the redistribution of wealth resulting in a minimum income for all people. When the population is sorted, if their income distribution were to approximate a well-known function, then some representative values could be calculated.

The Gini coefficient was proposed by Gini as a measure of inequality of income or wealth. [5] For OECD countries, in the late 20th century, considering the effect of taxes and transfer payments, the income Gini coefficient ranged between 0.24 and 0.49, with Slovenia being the lowest and Chile the highest. [6] African countries had the highest pre-tax Gini coefficients in 2008–2009, with South Africa the world's highest, variously estimated to be 0.63 to 0.7, [7] [8] although this figure drops to 0.52 after social assistance is taken into account, and drops again to 0.47 after taxation. [9] The global income Gini coefficient in 2005 has been estimated to be between 0.61 and 0.68 by various sources. [10] [11]

There are some issues in interpreting a Gini coefficient. The same value may result from many different distribution curves. The demographic structure should be taken into account. Countries with an aging population, or with a baby boom, experience an increasing pre-tax Gini coefficient even if real income distribution for working adults remains constant. Scholars have devised over a dozen variants of the Gini coefficient. [12] [13] [14]


Graphical representation of the Gini coefficient

The graph shows that the Gini coefficient is equal to the area marked A divided by the sum of the areas marked A and B, that is, Gini = A / (A + B). It is also equal to 2A and to 1 − 2B due to the fact that A + B = 0.5 (since the axes scale from 0 to 1).

The Gini coefficient is usually defined mathematically based on the Lorenz curve, which plots the proportion of the total income of the population (y axis) that is cumulatively earned by the bottom x% of the population (see diagram). The line at 45 degrees thus represents perfect equality of incomes. The Gini coefficient can then be thought of as the ratio of the area that lies between the line of equality and the Lorenz curve (marked A in the diagram) over the total area under the line of equality (marked A and B in the diagram); i.e., G = A / (A + B). It is also equal to 2A and to 1 − 2B due to the fact that A + B = 0.5 (since the axes scale from 0 to 1).

If all people have non-negative income (or wealth, as the case may be), the Gini coefficient can theoretically range from 0 (complete equality) to 1 (complete inequality); it is sometimes expressed as a percentage ranging between 0 and 100. In practice, both extreme values are not quite reached. If negative values are possible (such as the negative wealth of people with debts), then the Gini coefficient could theoretically be more than 1. Normally the mean (or total) is assumed positive, which rules out a Gini coefficient less than zero.

An alternative approach would be to consider the Gini coefficient as half of the relative mean absolute difference, which is a mathematical equivalence. [15] The mean absolute difference is the average absolute difference of all pairs of items of the population, and the relative mean absolute difference is the mean absolute difference divided by the average, to normalize for scale. if xi is the wealth or income of person i, and there are n persons, then the Gini coefficient G is given by:

When the income (or wealth) distribution is given as a continuous probability distribution function p(x), where p(x)dx is the fraction of the population with income x to x+dx, then the Gini coefficient is again half of the relative mean absolute difference:

where μ is the mean of the distribution and the lower limits of integration may be replaced by zero when all incomes are positive.

Other Languages