The Gini index or Gini coefficient is a statistical measure of distribution
developed by the Italian statistician Corrado Gini in 1912. It is often used
as a gauge of economic inequality, measuring income distribution or,
less commonly, wealth distribution among a population. The coefficient
ranges from 0 (or 0%) to 1 (or 100%), with 0 representing perfect
equality and 1 representing perfect inequality. Values over 1 are
theoretically possible due to negative income or wealth.
KEY TAKEAWAYS
The Gini index is a simple measure of the distribution of income
across income percentiles in a population.
A higher Gini index indicates greater inequality, with high income
individuals receiving much larger percentages of the total income
of the population.
Global inequality as measured by the Gini index increased over the
19th and 20th centuries, but has declined in more recent years.
Because of data and other limitations, the Gini index may overstate
income inequality and can obscure important information about
income distribution.
Understanding the Gini Index
A country in which every resident has the same income would have an
income Gini coefficient of 0. A country in which one resident earned all
the income, while everyone else earned nothing, would have an
income Gini coefficient of 1.
The same analysis can be applied to wealth distribution (the "wealth Gini
coefficient"), but because wealth is more difficult to measure than
income, Gini coefficients usually refer to income and appear simply
as "Gini coefficient" or "Gini index," without specifying that they refer to
income. Wealth Gini coefficients tend to be much higher than those for
income.
The Gini coefficient is an important tool for analyzing income or
wealth distribution within a country or region, but it should not be
mistaken for an absolute measurement of income or wealth. A high-
income country and a low-income one can have the same Gini
coefficient, as long as incomes are distributed similarly within each:
Turkey and the U.S. both had income Gini coefficients around 0.39-0.40
in 2016, according to the OECD, though Turkey's GDP per person was
less than half the U.S.'s (in 2010 dollar terms).
Graphical Representation of the Gini Index
The Gini index is often represented graphically through the Lorenz
curve, which shows income (or wealth) distribution by plotting the
population percentile by income on the horizontal axis and cumulative
income on the vertical axis. The Gini coefficient is equal to the area
below the line of perfect equality (0.5 by definition) minus the area below
the Lorenz curve, divided by the area below the line of perfect equality.
In other words, it is double the area between the Lorenz curve and the
line of perfect equality.
In the graph below, the 47th percentile corresponds to 10.46% in Haiti
and 17.42% in Bolivia, meaning that the bottom 47% of Haitians take in
10.46% of their nation's total income and the bottom 47% of Bolivians
take in 17.42% of theirs. The straight line represents a hypothetically
equal society: the bottom 47% take in 47% of national income.
To estimate the income Gini coefficient for Haiti in 2012, we would find
the area below its Lorenz curve: around 0.2. Subtracting that figure from
0.5 (the area under the line of equality), we get 0.3, which we then divide
by 0.5. This yields an approximate Gini of 0.6 or 60%. The CIA gives the
actual Gini for Haiti in 2012 as 60.8% (see below). This figure represents
extremely high inequality; only Micronesia, the Central African Republic,
South Africa, and Lesotho are more unequal, according to the CIA.
Another way of thinking about the Gini coefficient is as a measure of
deviation from perfect equality. The further a Lorenz curve deviates from
the perfectly equal straight line (which represents a Gini coefficient of 0),
the higher the Gini coefficient and the less equal the society. In the
example above, Haiti is more unequal than Bolivia.
The Gini Index Around the World
Global Gini
Christoph Lakner of the World Bank and Branko Milanovic of the City
University of New York estimate that the global income Gini
coefficient was 0.705 in 2008, down from 0.722 in 1988. Figures vary
considerably, however. DELTA economists François Bourguignon and
Christian Morrisson estimate that the figure was 0.657 in both 1980 and
1992. Bourguignon and Morrisson's work shows a sustained growth in
inequality since 1820 when the global Gini coefficient was
0.500. Lakner and Milanovic's shows a decline in inequality around the
beginning of the 21st century, as does a 2015 book by Bourguignon:
