Gini coefficient

Gini coefficient

The Gini coefficient 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 measurement of inequality. It was developed by the Italian statistician Corrado Gini and published in his 1912 paper "Variability and Mutability" (Variabilità e mutabilità). 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 (for example, where only one person has all the income or consumption, and all others have none).

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. The Gini coefficient is the ratio of the area that lies between the line of equality (which represents perfect equality) and the Lorenz curve over the total area under the line of equality.

Calculation

The Gini coefficient is calculated as \(G = \frac{A}{A + B}\), where \(A\) is the area between the Lorenz curve and the line of equality, and \(B\) is the area under the Lorenz curve. It can also be calculated with the formula \(G = 1 - 2B\), which derives from the fact that \(A + B = 0.5\) (the area under the line of equality).

Applications

The Gini coefficient is widely used in various fields, including economics, public policy, and sociology, to gauge the level of inequality of a distribution. It is a crucial tool for social scientists and policymakers to understand and address economic disparities. The coefficient can apply not only to income or wealth distribution but also to other distributions, such as land ownership, consumption, etc.

Limitations

While the Gini coefficient provides a concise measure of income or wealth inequality, it has limitations. It does not specify how income or wealth is distributed among individuals or groups within the society. Two countries with the same Gini coefficient can have very different income distributions. Moreover, the Gini coefficient does not account for the size of the economy, the level of development, or potential for economic mobility.

Global Gini Coefficient

Globally, Gini coefficients vary greatly, reflecting the diverse levels of inequality in different countries. Countries in Scandinavia and Western Europe tend to have among the lowest Gini coefficients, indicative of relatively equal income distributions, while many countries in Latin America and Sub-Saharan Africa exhibit higher Gini coefficients, suggesting greater inequality.