Gini coefficient

In economics, the Gini coefficient (sometimes expressed as a Gini ratio or a normalized Gini index) (/ini/ 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]

  1. ^ Gini (1912).
  2. ^ Gini, C. (1909). "Concentration and dependency ratios" (in Italian). English translation in Rivista di Politica Economica, 87 (1997), 769–789.
  3. ^ "Current Population Survey (CPS) – Definitions and Explanations". US Census Bureau. 
  4. ^ Note: Gini coefficient becomes 1, only in a large population where one person has all the income. In the special case of just two people, where one has no income and the other has all the income, the Gini coefficient is 0.5. For 5 people set, where 4 have no income and the fifth has all the income, the Gini coefficient is 0.8. See: FAO, United Nations – Inequality Analysis, The Gini Index Module (PDF format),
  5. ^ Gini, C. (1936). "On the Measure of Concentration with Special Reference to Income and Statistics", Colorado College Publication, General Series No. 208, 73–79.
  6. ^ "Income distribution – Inequality: Income distribution – Inequality – Country tables". OECD. 2012. Archived from the original on 9 November 2014. 
  7. ^ "South Africa Snapshot, Q4 2013" (PDF). KPMG. 2013. 
  8. ^ "Gini Coefficient". United Nations Development Program. 2012. 
  9. ^ Schüssler, Mike (16 July 2014). "The Gini is still in the bottle". Money Web. Retrieved 24 November 2014. 
  10. ^ Hillebrand, Evan (June 2009). "Poverty, Growth, and Inequality over the Next 50 Years" (PDF). FAO, United Nations – Economic and Social Development Department. 
  11. ^ Cite error: The named reference undp10 was invoked but never defined (see the help page).
  12. ^ Yitzhaki, Shlomo (1998). "More than a Dozen Alternative Ways of Spelling Gini" (PDF). Economic Inequality. 8: 13–30. 
  13. ^ Sung, Myung Jae (August 2010). "Population Aging, Mobility of Quarterly Incomes, and Annual Income Inequality: Theoretical Discussion and Empirical Findings". 
  14. ^ Cite error: The named reference blomq81 was invoked but never defined (see the help page).

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