Gini Coefficient1

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% of
A measure that has been very widely used to represent the
Income 0.8
extent of inequality is the Gini coefficient attributed to Gini
(1912). One way of viewing it is in terms of the Lorenz curve
0.6
due-not surprisingly-to Lorenz (1905), whereby the percentages
of the population arranged from the poorest to the richest are
0.4
represented on the horizontal axis and the percentages of inLine of
absolute equality
come enjoyed by the bottom x% of the population is shown on
R
the vertical axis. Obviously 0% of the population enjoys 0% of
0.2
the income and 100% of the population enjoy all the income.
Lorenz curve
So a Lorenz curve runs from one corner of the unit square to
B
the diametrically opposite corner. If everyone has the same
0.2
0.4
0.6
0.8
1
income the Lorenz curve will be simply the diagonal, but in
% of Population
the absence of perfect equality the bottom income groups will
enjoy a proportionately lower share of income. It is obvious, The Gini coefficient is now easily calculated by seeing that
therefore, that any Lorenz curve must lie below the diagonal the area beneath the Lorenz curve is two triangles and one
(except the one of complete equality which would be the diag- rectangle.
onal), and its slope will increasingly rise-at any rate not fall-as
we move to richer and richer sections of the population.
1  1




1
2
2 0.9 0.45 + (0.1 0.45) + 2 0.1 0.55
G =
1
=

% of
Income

0.45

There are various ways of defining the Gini coefficient, and a

bit of manipulation-tedious as it is-reveals that it is exactly
one half of the relative mean difference, which is defined as the
arithmetic average of the absolute values of differences between
all pairs of incomes.

Line of
absolute equality

G =

Lorenz curve

% of Population
Gini Coefficient, G =

1 XX
|yi yj |
2n2 i=1 j=1
n

1 XX
min{yi , yj }
n2 i=1 j=1

1+

2 X
1
iyi
2
n n i=1

Ar(R)
Ar(R) + Ar(B)

for y1 y2 yn
The Gini coefficient is the ratio of the difference between
the line of absolute equality (the diagonal) and the Lorenz where y is the income of individual i, is the average income
i
curve-represented in Diagram above as the red-shaded area-to of the society and n is the size of the population.
the triangular region underneath the diagonal.
1. Verify the above formulae for the example presented in the
article.
Example. Consider a simple economy where 90 percent of citizens report an annual income of $10,000 while the remaining
10 percent report an annual income of $110,000. What is the
Gini coefficient associated with this economy?
As all citizens in each group receive an equal income, the actual
Lorenz curve will be a straight line within each group. Lets
suppose there are 1,000 citizens. The 90% of poorest citizens,
therefore, receive 0.90 1000 $10,000 = $9 million. The entire economy, though, earns 0.9(10, 000) + 0.1(110, 000)= $20
million. Therefore, the bottom 90% receives 9/20 = 45% of
total income. The perfect and actual Lorenze curves can now
be drawn rather easily.

1 Contact:

2. (a) There are 5 individuals in an economy and their incomes are 5, 11, 18, 25, 41 respectively. Find the Gini
coefficient of inequality for this economy?
(b) Now suppose due to progressive transfer (i.e richest
person remains richest and poorer person remains
poorer) richest persons transfer 5 unit of his income
to poorer person, Now the new income of individuals are as follows: 10, 11, 18, 25, 36. Now calculate the
new Gini coefficient of inequality? Also state whether
the inequality has reduced or increased.
3. There is a linear city of length one, the [0, 1] interval. A
unit mass of consumers are distributed according to density function f on this interval. Suppose the consumer

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located at x [0, 1] earns income x. Find the equation of

the Lorenz curve, and evaluate the Gini coefficient for the
society for each of the following cases:
(a) A unit mass of consumers are uniformly distributed
on the interval [0, 1] i.e.
(
1 if 0 x 1
f (x) =
0 otherwise

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(b) A unit mass of consumers are distributed according

to the following distribution on the interval [0, 1]:
(
2 2x if 0 x 1
f (x) =
0
otherwise
(c) A unit mass of consumers are distributed according
to the following distribution on the interval [0, 1]:
(
2x if 0 x 1
f (x) =
0
otherwise

References. On Economic Inequality by James Foster and

Amartya Sen