Gini Index

THE GINI INDEX IS a summary measure of income inequality that was developed by the Italian statistician and demographer Corrado Gini (1884–1965). It is an application of his theory of dispersion in a concentration and is best illustrated using the so-called Lorenz curve, named after the American economist Max Lorenz (1880–1962). It is used to illustrate the size distribution of income. A hypothetical Lorenz curve is presented below.

In the figure, Y represents the cumulative percentage of income and X the cumulative percentage of households, and therefore the horizontal and vertical axes add up to 100 percent. The diagonal (45-degree line) in the box represents a perfectly equal distribution of income, each quintile (that is, each 20 percent) of households receiving exactly 20 percent of total income. The Lorenz curve under the diagonal represents an actual distribution of income and tells the extent of income inequality. Low-income households (toward the origin on the X-axis) have a relatively low share in total income, whereas high-income households, for instance in the top quintile, have a higher share in total income. The more bowed out (convex) the Lorenz curve, the higher the income inequality.

The Gini Index (G) is a summary of statistics of the extent of income inequality. It is calculated simply as the area under the diagonal and above the Lorenz curve (area a) divided by the entire area under the Lorenz diagonal (area a+b):

The Gini Index is equal to 0 when income distribution is perfectly equal and 1 when income distribution is perfectly unequal. Intercountry and, over time, intra-country comparisons of the Gini coefficient are often made, even though such comparisons have statistical measurement limits and depend on the accuracy of the data. For instance, according to the U.S. Census Bureau, income inequality in the United States increased steadily from 1970 to 2000. The Gini Index in 1970 was .394 and increased to .403 by 1980, to .428 by 1990, and to .462 by 2000.

High income inequality is one of the main causes of overall poverty. The disparity in income shares indicates that low-income groups receive a disproportionately low share in total income, are unable to meet their basic needs, and hence are poverty-stricken. It is, therefore, not surprising to note that countries with a high Gini Index are also countries with high poverty rates. According to the United Nations Development Program [Page 433](UNDP), Botswana, the Central African Republic, Lesotho, Sierra Leone, and Swaziland are among the countries with the highest income inequality. Not surprisingly they are also the countries with the lowest rankings in terms of Human Development (HDI, available for 177 countries) and Human Poverty (HPI-1, available for 103 countries) Indexes. A sampling includes:

Perhaps a strategy to fight poverty should start with measures aimed at reducing income inequality.