What is Gini coefficient?
The Gini coefficient is a measure of inequality or dispersion developed by Italian statistician Corrado Gini and published in his 1912 paper “Variability and Mutability”. Gini coefficient is a statistical measure of economic inequality which measures the more unequal distribution of income in a particular community. It is also called Gini Index, Lorenz curve and Gini ratio. Gini coefficient ranges from 0 to 1. A Gini coefficient of 0 signifies a perfectly equal distribution in a population, i.e., every individual has the same amount of money, income and wealth. A Gini coefficient of 1 indicates the maximum inequality among people in a society, i.e., one person has all the money, income and wealth, while the rest of the people have nothing. A Gini coefficient of 0.5 or 0.6 is considered to be high inequality and it usually means that there are high levels of poverty.
Gini coefficient is used to measure the level of inequality in a country’s economic system and it is based on the Lorenz curve. The Lorenz curve is a graphical illustration of the cumulative proportion of the economy’s total income possessed by the bottom x% of the population. In a perfectly equal society, it would be a 45 degree line, illustrating that everyone has exactly the same share of the total income. Rather than looking at absolute income, the Gini coefficient looks at the distribution of income relative to the total. The coefficient depicts both the level of inequality in a population and the income group that disproportionately controls the country’s wealth.
The Gini coefficient is used to track changes in inequality within countries over time. It is also used by economists to compare the income inequality in different countries. When used in this way, the Gini coefficient becomes a tool to measure and compare the relative wealth or income of different nations around the world. It can be used to compare income or wealth in an absolute sense, as well as to compare how wealthy each country’s poorest and wealthiest citizens are in relation to each other.
The Gini coefficient is a useful tool for measuring economic inequality. It has to be used in conjunction with other measurements, however, such as poverty rate, median household income and the Human Development Index. By looking at all of these measurements together, economists and policymakers can gain greater insight into the degree of economic inequality and the levels of poverty and economic disparities in a given country. Understanding the economic disparities in a country will help governments and international organizations develop policies that address these issues.
