Gini Index

The Gini index is a commonly used measure of inequality in the distribution of income, wealth, consumption, and other economic variables—although it can be used to calculate inequality of anything that can be measured. It was developed by the Italian statistician Corrado Gini and published in his 1912 paper “Variabilità e mutabilità” (“Variability and Mutability”). It is defined as 100 times the Gini coefficient, which is the ratio of the area inside the Lorenz curve to the area under the line of perfect equality. The Lorenz curve graphically shows the distribution by plotting the cumulative percent going to the bottom × percent of the population. The Lorenz curve for U.S. income data from 2005 shows that the poorest 20 percent of households earn 3.5 percent of the pre-tax/pre-transfer income, while the poorest 40 percent (which includes the bottom 20 percent and the next poorest 20 percent) collectively earns 12 percent of income.

Thus, a lower Gini index indicates more equality. The lowest possible value of the Gini index is 0, in which case the Lorenz curve lies on top of the line of perfect equality and everyone has exactly the same amount. The highest possible value of the Gini index is 100, in which case the Lorenz curve lies along the horizontal axis and one person has everything, while the others have none.

The Gini index is useful because it condenses the entire distribution into a single, unitless measure that can easily be compared over time, across groups and countries and across economic (and noneconomic) variables.

World Bank

The most widely cited Gini estimates are from the World Bank's World Development Indicators. Using data from recent years, the World Bank estimates that the most economically equal countries in the world—with income Ginis below 30—include many smaller European countries such as Austria, Bulgaria, the Czech Republic, Hungary, and all the Scandinavian countries, as well as Germany, Ukraine, and Japan. In the low to mid 30s are Australia, Bangladesh, Britain, Canada, Egypt, Ethiopia, France, Indonesia, Italy, Pakistan, Poland, South Korea, Spain, and Vietnam. In the high 30s and low 40s are India, Iran, Israel, Kenya, Morocco, Russia, and Thailand.

The average Gini coefficient in the 126 countries on the World Bank's list is 40.8—exactly the same as the rate in the United States, but almost all the countries with higher levels of inequality than the United States are much poorer. China's Gini is about 47. Other countries in the mid and upper 40s are Malaysia, Mexico, Nigeria, the Philippines, Uganda, and Venezuela. Among the highest in the world are many nations in Latin America and Africa, with Bolivia, Botswana, Brazil, Colombia, Haiti, and South Africa near 60. Topping the chart is Namibia in southwest Africa at 74.

Ironically, the Gini index for the world as a whole—estimated to be between 56 and 66—is almost higher [Page 755]than for any single country, since rich people tend to live with other rich people, fairly equally in rich countries, and poor people tend to live with other poor people, fairly equally in poor countries.

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