Gini coefficient

The Gini coefficient is a measure of inequality developed by the Italian statistician Corrado Gini and published in his 1912 paper "Variabilità e mutabilità". It is usually used to measure income inequality, but can be used to measure any form of uneven distribution. The Gini coefficient is a number between 0 and 1, where 0 corresponds with perfect equality (where everyone has the same income) and 1 corresponds with perfect inequality (where one person has all the income, and everyone else has zero income). The Gini index is the Gini coefficient expressed in percentage form, and is equal to the Gini coefficient multiplied by 100.

Advantages of the Gini coefficient as a measure of inequality

• The Gini coefficient's main advantage is that it is a measure of inequality, not a measure of average income or some other variable which is unrepresentative of most of the population, such as gross domestic product.
• Gini coefficients can be used to compare income distributions across different population sectors as well as countries, for example the Gini coefficient for urban areas differs from that of rural areas in many countries (though the United States' urban and rural Gini coefficients are nearly identical).
• The Gini coefficient is sufficiently simple that it can be compared across countries and be easily interpreted. GDP statistics are often criticised as they do not represent changes for the whole population, the Gini coefficient demonstrates how income has changed for poor and rich. If the Gini coefficient is rising as well as GDP, poverty may not be improving for the vast majority of the population.
• The Gini coefficient can be used to indicate how the distribution of income has changed within a country over a period of time, thus it is possible to see if inequality is increasing or decreasing.
• The Gini coefficient satisfies four important principles:
• Anonymity: it doesn?t matter who the high and low earners are.
• Scale independence: the Gini coefficient does not consider the size of the economy, the way it is measured, or whether it is a rich or poor country on average.
• Population independence: it does not matter how large the population of the country is.
• Transfer principle: if income (less than the difference), is transferred from a rich person to a poor person the resulting distribution is more equal.