The Gini coefficient, also known as the Gini index or Gini ratio, is a measure of statistical dispersion intended to represent the income or wealth inequality within a nation or a social group. It was developed by the Italian statistician Corrado Gini in 1912.
The Gini coefficient quantifies inequality on a scale from 0 to 1, where:
- 0 represents perfect equality (everyone has the same income or wealth)
- 1 represents perfect inequality (one person has all the income or wealth, and everyone else has none)
It is commonly used by economists, policymakers, and international organizations to compare inequality across countries and over time.
The Gini coefficient is calculated based on the Lorenz curve, which plots the cumulative share of income earned by the cumulative percentage of the population.
Mathematically, it can be expressed as:
G=2n2xˉ∑i=1n∑j=1n∣xi−xj∣
Where:
- xi and xj are incomes of individuals i and j
- n is the total number of individuals
- xˉ is the mean income
The Gini coefficient can also be derived directly from the Lorenz curve as the area between the line of equality and the Lorenz curve, divided by the total area under the line of equality.
- Low Gini coefficient (0–0.3) – indicates relatively equal income distribution.
- Medium Gini coefficient (0.3–0.5) – indicates moderate inequality.
- High Gini coefficient (>0.5) – indicates high inequality.
It is important to note that the Gini coefficient does not indicate the absolute level of income, only relative inequality.
- Simple and widely understood measure of inequality.
- Allows easy comparison between countries or regions.
- Can be applied to income or wealth distributions.
- Does not capture differences within the extremes of the distribution well.
- Sensitive to data quality and reporting.
- Cannot distinguish between different distributions with the same Gini coefficient.
- Does not account for non-monetary factors like access to healthcare, education, or social services.