Gini coefficient

In economics, the Gini coefficient (sometimes expressed as a Gini ratio or a normalized Gini index) (/dʒini/ jee-nee) is a measure of
statistical dispersion intended to represent the income or wealth distribution of a nation's residents, and is the most commonly used
measure of inequality. It was developed by the Italian statistician and sociologist Corrado Gini and published in his 1912 paper Variability
and Mutability (Italian: Variabilità e mutabilità).[1][2]

The Gini coefficient measures the inequality among values of a frequency distribution (for example, levels of income). A Gini coefficient
of zero expresses perfect equality, where all values are the same (for example, where everyone has the same income). A Gini coef
ficient of
1 (or 100%) expresses maximal inequality among values (e.g., for a large number of people, where only one person has all the income or
consumption, and all others have none, the Gini coefficient will be very nearly one).[3][4] However, a value greater than one may occur if
some persons represent negative contribution to the total (for example, having negative income or wealth). For larger groups, values close
to or above 1 are very unlikely in practice. Given the normalization of both the cumulative population and the cumulative share of income
used to calculate the Gini coefficient, the measure is not overly sensitive to the specifics of the income distribution, but rather only on how
incomes vary relative to the other members of a population. The exception to this is in the redistribution of wealth resulting in a minimum
income for all people. When the population is sorted, if their income distribution were to approximate a well-known function, then some
representative values could be calculated.

The Gini coefficient was proposed by Gini as a measure of inequality of income or wealth.[5] For OECD countries, in the late 20th
century, considering the effect of taxes and transfer payments, the income Gini coefficient ranged between 0.24 and 0.49, with Slovenia
being the lowest and Chile the highest.[6] African countries had the highest pre-tax Gini coefficients in 2008–2009, with South Africa the
world's highest, variously estimated to be 0.63 to 0.7,[7][8] although this figure drops to 0.52 after social assistance is taken into account,
and drops again to 0.47 after taxation.[9] The global income Gini coefficient in 2005 has been estimated to be between 0.61 and 0.68 by
various sources.[10][11]

There are some issues in interpreting a Gini coefficient. The same value may result from many different distribution curves. The
demographic structure should be taken into account. Countries with an aging population, or with a baby boom, experience an increasing
pre-tax Gini coefficient even if real income distribution for working adults remains constant. Scholars have devised over a dozen variants
of the Gini coefficient.[12][13][14]

Contents
Definition
Calculation
Example: two levels of income
Alternate expressions
Discrete probability distribution
Continuous probability distribution
Other approaches
Generalized inequality indices
Gini coefficients of income distributions
Regional income Gini indices
World income Gini index since 1800s
Gini coefficients of social development
Gini coefficient of education
Gini coefficient of opportunity
Gini coefficients and income mobility
Features of Gini coefficient
 Countries by Gini Index
Limitations of Gini coefficient
Alternatives to Gini coefficient
Relation to other statistical measures
Other uses
See also
References
Further reading
External links

Definition
The Gini coefficient is usually defined mathematically based on the
Lorenz curve, which plots the proportion of the total income of the
population (y axis) that is cumulatively earned by the bottom x% of the
population (see diagram). The line at 45 degrees thus represents perfect
equality of incomes. The Gini coefficient can then be thought of as the
ratio of the area that lies between the line of equality and the Lorenz
curve (marked A in the diagram) over the total area under the line of
equality (marked A and B in the diagram); i.e., G = A / (A + B). It is also
equal to 2A and to 1 − 2B due to the fact that A + B = 0.5 (since the axes
scale from 0 to 1).

If all people have non-negative income (or wealth, as the case may be),
the Gini coefficient can theoretically range from 0 (complete equality)
to 1 (complete inequality); it is sometimes expressed as a percentage
ranging between 0 and 100. In practice, both extreme values are not
quite reached. If negative values are possible (such as the negative
wealth of people with debts), then the Gini coefficient could Graphical representation of the Gini coefficient
theoretically be more than 1. Normally the mean (or total) is assumed
The graph shows that the Gini coefficient is equal to
positive, which rules out a Gini coefficient less than zero.
the area marked A divided by the sum of the areas
marked A and B, that is, Gini = A / (A + B). It is also
An alternative approach is to define the Gini coefficient as half of the
equal to 2A and to 1 − 2B due to the fact that
relative mean absolute difference, which is mathematically equivalent to
A + B = 0.5 (since the axes scale from 0 to 1).
the Lorenz curve definition.[15] The mean absolute difference is the
average absolute difference of all pairs of items of the population, and
the relative mean absolute difference is the mean absolute difference divided by the average, to normalize for scale. if xi is the wealth or
income of person i, and there are n persons, then the Gini coefficient G is given by:

When the income (or wealth) distribution is given as a continuous probability distribution functionp(x), where p(x)dx is the fraction of the
population with incomex to x+dx, then the Gini coefficient is again half of the relative mean absolute difference:
where μ is the mean of the distribution and the lower limits of integration may be replaced by zero when all incomes

are positive.

Calculation

Example: two levels of income

The most equal society will be one in which every person receives the same income
(G = 0); the most unequal society will be one in which a single person receives 100% of
the total income and the remainingN − 1 people receive none (G = 1 − 1/N).

While the income distribution of any particular country need not follow simple functions,
these functions give a qualitative understanding of the income distribution in a nation
given the Gini coefficient. The effects of minimum income policy due to redistribution
can be seen in the linear relationships.

An informative simplified case just distinguishes two levels of income, low and high. If
the high income group is u % of the population and earns a fraction f % of all income,
then the Gini coefficient is f − u. An actual more graded distribution with these same
Richest u % of population (red)
values u and f will always have a higher Gini coefficient than f − u.
equally share f % of all income or
The proverbial case where the richest 20% have 80% of all income (see Pareto principle) wealth, others (green) equally share
remainder: G = f − u. A smooth
would lead to an income Gini coefficient of at least 60%.
distribution (blue) with sameu and f
always has G > f − u.
An often cited[16] case that 1% of all the world's population owns 50% of all wealth,
means a wealth Gini coefficient of at least 49%.

Alternate expressions
In some cases, this equation can be applied to calculate the Gini coefficient without direct reference to the Lorenz curve. For example,
(taking y to mean the income or wealth of a person or household):

For a population uniform on the valuesyi, i = 1 to n, indexed in non-decreasing order y( i ≤ yi+1):

This may be simplified to:

This formula actually applies to any real population, since each person can be assigned his or
her own yi.[17]

Since the Gini coefficient is half the relative mean absolute difference, it can also be calculated using formulas for the relative mean
absolute difference. For a random sample S consisting of values yi, i = 1 to n, that are indexed in non-decreasing order (yi ≤ yi+1), the
statistic:
 is a consistent estimator of the population Gini coefficient, but is not, in general, unbiased. Like
G, G (S) has a simpler form:

There does not exist a sample statistic that is in general an unbiased estimator of the population Gini coefficient, like the relative mean
absolute difference.

Discrete probability distribution

For a discrete probability distributionwith probability mass function f ( yi ), i = 1 to n, where f ( yi ) is the fraction of the population with
income or wealth yi >0, the Gini coefficient is:

where

If the points with nonzero probabilities are indexed in increasing order (yi < yi+1) then:

where
and . These formulae are also applicable in the limit as .

Continuous probability distribution

When the population is large, the income distribution may be represented by a continuous probability density functionf(x) where f(x) dx is
the fraction of the population with wealth or income in the interval dx about x. If F(x) is the cumulative distribution function for f(x), then
the Lorenz curve L(F) may then be represented as a function parametric inL(x) and F(x) and the value of B can be found by integration:

The Gini coefficient can also be calculated directly from the cumulative distribution function of the distribution F(y). Defining μ as the
mean of the distribution, and specifying thatF(y) is zero for all negative values, the Gini coefficient is given by:

The latter result comes fromintegration by parts. (Note that this formula can be applied when there are negative values if the integration is
taken from minus infinity to plus infinity.)

The Gini coefficient may be expressed in terms of the quantile function Q(F) (inverse of the cumulative distribution function: Q(F(x))=x)
For some functional forms, the Gini index can be calculated explicitly. For example, if y follows a lognormal distribution with the

standard deviation of logs equal to , then where is the error function ( since , where is the

cumulative standard normal distribution).[18] In the table below, some examples are shown. The Dirac delta distribution represents the
case where everyone has the same wealth (or income); it implies that there are no variations at all between incomes.

Income Distribution function PDF(x) Gini Coefficient

Dirac delta function 0

Uniform distribution

Exponential distribution

Log-normal distribution

Pareto distribution

Chi-squared distribution

Gamma distribution

Weibull distribution

Beta distribution

Other approaches
Sometimes the entire Lorenz curve is not known, and only values at certain intervals are given. In that case, the Gini coefficient can be
approximated by using various techniques for interpolating the missing values of the Lorenz curve. If (Xk, Yk) are the known points on the
Lorenz curve, with theXk indexed in increasing order (Xk – 1 < Xk), so that:

Xk is the cumulated proportion of the population variable, fork = 0,...,n, with X0 = 0, Xn = 1.

Yk is the cumulated proportion of the income variable, fork = 0,...,n, with Y0 = 0, Yn = 1.
Yk should be indexed in non-decreasing order Y
( k > Yk – 1 )
If the Lorenz curve is approximated on each interval as a line between consecutive points, then the area B can be approximated with
trapezoids and:

is the resulting approximation for G. More accurate results can be obtained using other methods to approximate the area B, such as
approximating the Lorenz curve with a quadratic function across pairs of intervals, or building an appropriately smooth approximation to
the underlying distribution function that matches the known data. If the population mean and boundary values for each interval are also
known, these can also often be used to improve the accuracy of the approximation.

The Gini coefficient calculated from a sample is a statistic and its standard error, or confidence intervals for the population Gini
coefficient, should be reported. These can be calculated using bootstrap techniques but those proposed have been mathematically
complicated and computationally onerous even in an era of fast computers. Ogwang (2000) made the process more efficient by setting up
a "trick regression model" in which respective income variables in the sample are ranked with the lowest income being allocated rank 1.
The model then expresses the rank (dependent variable) as the sum of a constant A and a normal error term whose variance is inversely
proportional to yk;

Ogwang showed that G can be expressed as a function of the weighted least squares estimate of the constant A and that this can be used to
speed up the calculation of the jackknife estimate for the standard error. Giles (2004) argued that the standard error of the estimate of A
can be used to derive that of the estimate of G directly without using a jackknife at all. This method only requires the use of ordinary least
squares regression after ordering the sample data. The results compare favorably with the estimates from the jackknife with agreement
improving with increasing sample size.[19]

However it has since been argued that this is dependent on the model's assumptions about the error distributions (Ogwang 2004) and the
independence of error terms (Reza & Gastwirth 2006) and that these assumptions are often not valid for real data sets. It may therefore be
better to stick with jackknife methods such as those proposed by Yitzhaki (1991) and Karagiannis and Kovacevic (2000). The debate
continues.

Guillermina Jasso[20] and Angus Deaton[21] independently proposed the following formula for the Gini coef
ficient:

where is mean income of the population, Pi is the income rank P of person i, with income X, such that the richest person receives a rank
of 1 and the poorest a rank of N. This effectively gives higher weight to poorer people in the income distribution, which allows the Gini to
meet the Transfer Principle. Note that the Jasso-Deaton formula rescales the coefficient so that its value is 1 if all the are zero except
one. Note however Allison's reply on the need to divide by N² [22]
instead.

FAO explains another version of the formula.[23]

Generalized inequality indices

The Gini coefficient and other standard inequality indices reduce to a common form. Perfect equality—the absence of inequality—exists
when and only when the inequality ratio, , equals 1 for all j units in some population (for example, there is perfect income
equality when everyone's income equals the mean income , so that for everyone). Measures of inequality, then, are measures
of the average deviations of the from 1; the greater the average deviation, the greater the inequality. Based on these observations
the inequality indices have this common form:[24]

where pj weights the units by their population share, and f(rj) is a function of the deviation of each unit's rj from 1, the point of equality.
The insight of this generalised inequality index is that inequality indices differ because they employ different functions of the distance of
the inequality ratios (therj) from 1.

Gini coefficients of income distributions

Gini coefficients of income are calculated on market income as well as disposable income basis. The Gini coefficient on market income—
sometimes referred to as a pre-tax Gini coefficient—is calculated on income before taxes and transfers, and it measures inequality in
income without considering the effect of taxes and social spending already in place in a country. The Gini coefficient on disposable
income—sometimes referred to as after-tax Gini coefficient—is calculated on income after taxes and transfers, and it measures inequality
.[6][25][26]
in income after considering the effect of taxes and social spending already in place in a country

The difference in Gini indices between OECD countries, on after-taxes and transfers basis, is significantly narrower.[26] For OECD
countries, over 2008–2009 period, Gini coefficient on pre-taxes and transfers basis for total population ranged between 0.34 and 0.53,
with South Korea the lowest and Italy the highest. Gini coefficient on after-taxes and transfers basis for total population ranged between
0.25 and 0.48, with Denmark the lowest and Mexico the highest. For United States, the country with the largest population in OECD
countries, the pre-tax Gini index was 0.49, and after-tax Gini index was 0.38, in 2008–2009. The OECD averages for total population in
OECD countries was 0.46 for pre-tax income Gini index and 0.31 for after-tax income Gini Index.[6][27] Taxes and social spending that
were in place in 2008–2009 period in OECD countries significantly lowered effective income inequality, and in general, "European
[28]
countries—especially Nordic and Continentalwelfare states—achieve lower levels of income inequality than other countries."

Using the Gini can help quantify differences in welfare and compensation policies and philosophies. However it should be borne in mind
that the Gini coefficient can be misleading when used to make political comparisons between large and small countries or those with
different immigration policies (seelimitations of Gini coefficient section).

The Gini coefficient for the entire world has been estimated by various parties to be between 0.61 and 0.68.[10][11][29] The graph shows
the values expressed as a percentage in their historical development for a number of countries.

Regional income Gini indices

According to UNICEF, Latin America and the Caribbean region had the highest net income Gini index in the world at 48.3, on
unweighted average basis in 2008. The remaining regional averages were: sub-Saharan Africa (44.2), Asia (40.4), Middle East and North
Africa (39.2), Eastern Europe and Central Asia (35.4), and High-income Countries (30.9). Using the same method, the United States is
[30]
claimed to have a Gini index of 36, while South Africa had the highest income Gini index score of 67.8.
World income Gini index since 1800s
The table below presents the estimated world income Gini coefficients
over the last 200 years, as calculated by Milanovic.[32] Taking income
distribution of all human beings, the worldwide income inequality has
been constantly increasing since the early 19th century. There was a
steady increase in the global income inequality Gini score from 1820 to
2002, with a significant increase between 1980 and 2002. This trend
appears to have peaked and begun a reversal with rapid economic
growth in emerging economies, particularly in the large populations of
BRIC countries.[33]
Growth spells last longer in more equal countries. A
10 percentile increase in equality (represented by a
Income Gini coefficient
change in the Gini index value from 40 to 37)
World, 1820–2005
increases the expected length of a growth spell by
Year World Gini coefficients[10][30][34] 50 percent. Percentage changes in GDP growth
spell length are shown as each factor moves from
1820 0.43
50th to 60th percentile and all other factors are held
1850 0.53 constant. Income distribution is measured by the
1870 0.56 Gini coefficient.[31]

1913 0.61
1929 0.62
1950 0.64
1960 0.64
1980 0.66
2002 0.71
2005 0.68

More detailed data from similar sources plots a continuous decline since 1988. This is attributed to globalization increasing incomes for
billions of poor people, mostly in India and China. Developing countries like Brazil have also improved basic services like health care,
education, and sanitation; others like Chile and Mexico have enacted moreprogressive tax policies.[35]

Year World Gini coefficient[36]

1988 .80
1993 .76
1998 .74
2003 .72
2008 .70
2013 .65

Gini coefficients of social development

Gini coefficient is widely used in fields as diverse as sociology, economics, health science, ecology, engineering and agriculture.[37] For
example, in social sciences and economics, in addition to income Gini coefficients, scholars have published education Gini coefficients
and opportunity Gini coefficients.

Gini coefficient of education

Education Gini index estimates the inequality in education for a given population.[38] It is used to discern trends in social development
through educational attainment over time. From a study of 85 countries by three Economists of World Bank Vinod Thomas, Yan Wang,
Xibo Fan, estimate Mali had the highest education Gini index of 0.92 in 1990 (implying very high inequality in education attainment
across the population), while the United States had the lowest education inequality Gini index of 0.14. Between 1960 and 1990, South
Korea, China and India had the fastest drop in education inequality Gini Index. They also claim education Gini index for the United States
slightly increased over the 1980–1990 period.

Gini coefficient of opportunity

Similar in concept to income Gini coefficient, opportunity Gini coefficient measures inequality of opportunity.[39][40][41] The concept
builds on Amartya Sen's suggestion[42] that inequality coefficients of social development should be premised on the process of enlarging
people's choices and enhancing their capabilities, rather than on the process of reducing income inequality. Kovacevic in a review of
opportunity Gini coefficient explains that the coefficient estimates how well a society enables its citizens to achieve success in life where
the success is based on a person's choices, efforts and talents, not his background defined by a set of predetermined circumstances at birth,
such as, gender, race, place of birth, parent's income and circumstances beyond the control of thatndividual.
i

In 2003, Roemer[39][43] reported Italy and Spain exhibited the largest opportunity inequality Gini index amongst advanced economies.

Gini coefficients and income mobility

In 1978, Anthony Shorrocks introduced a measure based on income Gini coefficients to estimate income mobility.[44] This measure,
generalized by Maasoumi and Zandvakili,[45] is now generally referred to as Shorrocks index, sometimes as Shorrocks mobility index or
Shorrocks rigidity index. It attempts to estimate whether the income inequality Gini coefficient is permanent or temporary, and to what
extent a country or region enables economic mobility to its people so that they can move from one (e.g. bottom 20%) income quantile to
another (e.g. middle 20%) over time. In other words, Shorrocks index compares inequality of short-term earnings such as annual income
of households, to inequality of long-term earnings such as 5-year or 10-year total income for same households.

Shorrocks index is calculated in number of different ways, a common approach being from the ratio of income Gini coefficients between
.[46]
short-term and long-term for the same region or country

A 2010 study using social security income data for the United States since 1937 and Gini-based Shorrocks indices concludes that income
mobility in the United States has had a complicated history, primarily due to mass influx of women into the American labor force after
World War II. Income inequality and income mobility trendsc have been different for men and women workers between 1937 and the
2000s. When men and women are considered together, the Gini coefficient-based Shorrocks index trends imply long-term income
inequality has been substantially reduced among all workers, in recent decades for the United States.[46] Other scholars, using just 1990s
data or other short periods have come to different conclusions.[47] For example, Sastre and Ayala, conclude from their study of income
Gini coefficient data between 1993 and 1998 for six developed economies, that France had the least income mobility, Italy the highest,
[48]
and the United States and Germany intermediate levels of income mobility over those 5 years.

Features of Gini coefficient

The Gini coefficient has features that make it useful as a measure of dispersion in a population, and inequalities in particular.[23] It is a
ratio analysis method making it easier to interpret. It also avoids references to a statistical average or position unrepresentative of most of
the population, such as per capita income or gross domestic product. For a given time interval, Gini coefficient can therefore be used to
compare diverse countries and different regions or groups within a country; for example states, counties, urban versus rural areas, gender
and ethnic groups. Gini coefficients can be used to compare income distribution over time, thus it is possible to see if inequality is
increasing or decreasing independent of absolute incomes.

Other useful features of the Gini coefficient include:[49][50]

Anonymity: it does not 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.

Countries by Gini Index

A Gini index value above 50 is considered high;
countries including Brazil, Colombia, South Africa,
Botswana, and Honduras can be found in this category.
A Gini index value of 30 or above is considered
medium; countries including Vietnam, Mexico,
Poland, The United States, Argentina, Russia and
Uruguay can be found in this category. A Gini index
value lower than 30 is considered low; countries
including Austria, Germany, Denmark, Slovenia,
.[51]
Sweden and Ukraine can be found in this category

Countries' income inequality according to their most recent reported

Limitations of Gini Gini index values (often 10+ years old) as of 2014:
red = high, green = low inequality
coefficient
The Gini coefficient is a relative measure. Its proper
use and interpretation is controversial.[52] It is possible for the Gini coefficient of a developing country to rise (due to increasing
inequality of income) while the number of people in absolute poverty decreases.[53] This is because the Gini coefficient measures relative,
not absolute, wealth. Changing income inequality, measured by Gini coefficients, can be due to structural changes in a society such as
growing population (baby booms, aging populations, increased divorce rates, extended family households splitting into nuclear families,
emigration, immigration) and income mobility.[54] Gini coefficients are simple, and this simplicity can lead to oversights and can confuse
the comparison of different populations; for example, while both Bangladesh (per capita income of $1,693) and the Netherlands (per
capita income of $42,183) had an income Gini coefficient of 0.31 in 2010,[55] the quality of life, economic opportunity and absolute
income in these countries are very different, i.e. countries may have identical Gini coefficients, but differ greatly in wealth. Basic
necessities may be available to all in a developed economy, while in an undeveloped economy with the same Gini coefficient, basic
necessities may be unavailable to most or unequally available, due to lower absolute wealth.

Different income distributions with the same Gini

Table A. Different income distributions coefficient
with the same Gini Index[23]
Country A Country B Even when the total income of a population is the same, in certain situations two
Household
Annual Annual countries with different income distributions can have the same Gini index (e.g.
Group
Income ($) Income ($)
cases when income Lorenz Curves cross).[23] Table A illustrates one such situation.
1 20,000 9,000 Both countries have a Gini coefficient of 0.2, but the average income distributions
2 30,000 40,000 for household groups are different. As another example, in a population where the

3 40,000 48,000 lowest 50% of individuals have no income and the other 50% have equal income,
the Gini coefficient is 0.5; whereas for another population where the lowest 75% of
4 50,000 48,000
people have 25% of income and the top 25% have 75% of the income, the Gini
5 60,000 55,000 index is also 0.5. Economies with similar incomes and Gini coefficients can have
Total Income $200,000 $200,000 very different income distributions. Bellù and Liberati claim that to rank income
Country's Gini 0.2 0.2 inequality between two different populations based on their Gini indices is
sometimes not possible, or misleading.[56]

Extreme wealth inequality, yet low income Gini coefficient

A Gini index does not contain information about absolute national or personal incomes. Populations can have very low income Gini
indices, yet simultaneously very high wealth Gini index. By measuring inequality in income, the Gini ignores the differential efficiency of
use of household income. By ignoring wealth (except as it contributes to income) the Gini can create the appearance of inequality when
the people compared are at different stages in their life. Wealthy countries such as Sweden can show a low Gini coefficient for disposable
income of 0.31 thereby appearing equal, yet have very high Gini coefficient for wealth of 0.79 to 0.86 thereby suggesting an extremely
unequal wealth distribution in its society.[57][58] These factors are not assessed in income-based Gini.

Small sample bias – sparsely populated

regions more likely to have low Gini coefficient Table B. Same income distributions
but different Gini Index
Gini index has a downward-bias for small populations.[59] Counties Country A
Country A Household
or states or countries with small populations and less diverse Household combined
Annual combined
number Annual
economies will tend to report small Gini coefficients. For Income ($) number
Income ($)
economically diverse large population groups, a much higher
1 20,000
coefficient is expected than for each of its regions. Taking world 1&2 50,000
economy as one, and income distribution for all human beings, for 2 30,000

example, different scholars estimate global Gini index to range 3 40,000

3&4 90,000
between 0.61 and 0.68.[10][11] As with other inequality coefficients, 4 50,000
the Gini coefficient is influenced by the granularity of the
5 60,000
measurements. For example, five 20% quantiles (low granularity) 5&6 130,000
6 70,000
will usually yield a lower Gini coefficient than twenty 5% quantiles
(high granularity) for the same distribution. Philippe Monfort has 7 80,000
7&8 170,000
shown that using inconsistent or unspecified granularity limits the 8 90,000
usefulness of Gini coefficient measurements.[60]
9 120,000
9 & 10 270,000
The Gini coefficient measure gives different results when applied to 10 150,000
individuals instead of households, for the same economy and same Total Income $710,000 $710,000
income distributions. If household data is used, the measured value
Country's Gini 0.303 0.293
of income Gini depends on how the household is defined. When
different populations are not measured with consistent definitions,
comparison is not meaningful.

Deininger and Squire (1996) show that income Gini coefficient based on individual income, rather than household income, are different.
For example, for the United States, they find that the individual income-based Gini index was 0.35, while for France it was 0.43.
According to their individual focused method, in the 108 countries they studied, South Africa had the world's highest Gini coefficient at
0.62, Malaysia had Asia's highest Gini coefficient at 0.5, Brazil the highest at 0.57 in Latin America and Caribbean region, and Turkey the
highest at 0.5 in OECD countries.[61]

Gini coefficient is unable to discern the effects of structural changes in populations[54]

Expanding on the importance of life-span measures, the Gini coefficient as a point-estimate of equality at a certain time, ignores life-span
changes in income. Typically, increases in the proportion of young or old members of a society will drive apparent changes in equality,
simply because people generally have lower incomes and wealth when they are young than when they are old. Because of this, factors
such as age distribution within a population and mobility within income classes can create the appearance of inequality when none exist
taking into account demographic effects. Thus a given economy may have a higher Gini coefficient at any one point in time compared to
another, while the Gini coefficient calculated over individuals' lifetime income is actually lower than the apparently more equal (at a given
point in time) economy's.[14] Essentially, what matters is not just inequality in any particular year, but the composition of the distribution
over time.

Kwok claims income Gini coefficient for Hong Kong has been high (0.434 in 2010[55] ), in part because of structural changes in its
population. Over recent decades, Hong Kong has witnessed increasing numbers of small households, elderly households and elderly living
alone. The combined income is now split into more households. Many old people are living separately from their children in Hong Kong.
These social changes have caused substantial changes in household income distribution. Income Gini coefficient, claims Kwok, does not
discern these structural changes in its society.[54] Household money income distribution for the United States, summarized in Table C of
this section, confirms that this issue is not limited to just Hong Kong. According to the US Census Bureau, between 1979 and 2010, the
population of United States experienced structural changes in overall households, the income for all income brackets increased in
 inflation-adjusted terms, household income distributions
Table C. Household money income shifted into higher income brackets over time, while the
distributions and Gini Index, USA[62]
income Gini coefficient increased.[62][63]
Income bracket % of Population % of Population
(in 2010 adjusted dollars) 1979 2010 Another limitation of Gini coefficient is that it is not a
Under $15,000 14.6% 13.7% proper measure of egalitarianism, as it is only measures
income dispersion. For example, if two equally
$15,000 – $24,999 11.9% 12.0%
egalitarian countries pursue different immigration
$25,000 – $34,999 12.1% 10.9%
policies, the country accepting a higher proportion of
$35,000 – $49,999 15.4% 13.9% low-income or impoverished migrants will report a
$50,000 – $74,999 22.1% 17.7% higher Gini coefficient and therefore may appear to

$75,000 – $99,999 12.4% 11.4% exhibit more income inequality.

$100,000 – $149,999 8.3% 12.1% Inability to value benefits and income

$150,000 – $199,999 2.0% 4.5% from informal economy affects Gini
coefficient accuracy
$200,000 and over 1.2% 3.9%
Total Households 80,776,000 118,682,000 Some countries distribute benefits that are difficult to
value. Countries that provide subsidized housing,
United States' Gini
0.404 0.469 medical care, education or other such services are
on pre-tax basis
difficult to value objectively, as it depends on quality
and extent of the benefit. In absence of free markets, valuing these income transfers as household income is subjective. The theoretical
model of Gini coefficient is limited to accepting correct or incorrect subjective assumptions.

In subsistence-driven and informal economies, people may have significant income in other forms than money, for example through
subsistence farming or bartering. These income tend to accrue to the segment of population that is below-poverty line or very poor, in
emerging and transitional economy countries such as those in sub-Saharan Africa, Latin America, Asia and Eastern Europe. Informal
economy accounts for over half of global employment and as much as 90 per cent of employment in some of the poorer sub-Saharan
countries with high official Gini inequality coefficients. Schneider et al., in their 2010 study of 162 countries,[64] report about 31.2%, or
about $20 trillion, of world'sGDP is informal. In developing countries, the informal economy predominates for all income brackets except
for the richer, urban upper income bracket populations. Even in developed economies, between 8% (United States) to 27% (Italy) of each
nation's GDP is informal, and resulting informal income predominates as a livelihood activity for those in the lowest income brackets.[65]
The value and distribution of the incomes from informal or underground economy is difficult to quantify, making true income Gini
coefficients estimates difficult.[66][67] Different assumptions and quantifications of these incomes will yield different Gini
coefficients.[68][69][70]

Gini has some mathematical limitations as well. It is not additive and different sets of people cannot be averaged to obtain the Gini
coefficient of all the people in the sets.

Alternatives to Gini coefficient

Given the limitations of Gini coefficient, other statistical methods are used in combination or as an alternative measure of population
dispersity. For example, entropy measures are frequently used (e.g. the Theil Index, the Atkinson index and the generalized entropy
index). These measures attempt to compare the distribution of resources by intelligent agents in the market with a maximum entropy
random distribution, which would occur if these agents acted like non-intelligent particles in a closed system following the laws of
statistical physics.

Relation to other statistical measures

The Gini coefficient is closely related to the AUC (Area Under receiver operating characteristic Curve) measure of performance.[71] The
relation follows the formula . Gini coefficient is also closely related toMann–Whitney U.

The Gini index is also related to Pietra index—both of which are a measure of statistical heterogeneity and are derived from Lorenz curve
and the diagonal line.[72][73]
In certain fields such as ecology, inverse Simpson's index is used to quantify diversity, and this should not be confused with the
Simpson index . These indicators are related to Gini. The inverse Simpson index increases with diversity, unlike Simpson index and Gini
coefficient which decrease with diversity. The Simpson index is in the range [0, 1], where 0 means maximum and 1 means minimum
diversity (or heterogeneity). Since diversity indices typically increase with increasing heterogeneity, Simpson index is often transformed
into inverse Simpson, or using the complement , known as Gini-Simpson Index.[74]

Other uses
Although the Gini coefficient is most popular in economics, it can in theory be applied in any field of science that studies a distribution.
For example, in ecology the Gini coefficient has been used as a measure of biodiversity, where the cumulative proportion of species is
plotted against cumulative proportion of individuals.[75] In health, it has been used as a measure of the inequality of health related quality
of life in a population.[76] In education, it has been used as a measure of the inequality of universities.[77] In chemistry it has been used to
express the selectivity of protein kinase inhibitors against a panel of kinases.[78] In engineering, it has been used to evaluate the fairness
ferent flows of traffic.[79]
achieved by Internet routers in scheduling packet transmissions from dif

The Gini coefficient is sometimes used for the measurement of the discriminatory power ofrating systems in credit risk management.[80]

A 2005 study accessed US census data to measure home computer ownership, and used the Gini coefficient to measure inequalities
amongst whites and African Americans. Results indicated that although decreasing overall, home computer ownership inequality is
substantially smaller among white households.[81]

A 2016 peer-reviewed study titled Employing the Gini coefficient to measure participation inequality in treatment-focused Digital Health
Social Networks[82] illustrated that the Gini coefficient was helpful and accurate in measuring shifts in inequality,however as a standalone
metric it failed to incorporate overall network size.

The discriminatory power refers to a credit risk model's ability to dif

ferentiate between defaulting and non-defaulting clients. The formula
, in calculation section above, may be used for the final model and also at individual model factor level, to quantify the discriminatory
power of individual factors. It is related to accuracy ratio in population assessment models.

See also
Diversity index Social welfare provision
Economic inequality Suits index
Great Gatsby curve Utopia
Human Poverty Index Welfare economics
Income inequality metrics List of countries by distribution of wealth
Kuznets curve List of countries by income equality
Pareto distribution List of U.S. states by income equality
Hoover index (a.k.a. Robin Hood index) Herfindahl index
ROC analysis

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Further reading
Amiel, Y.; Cowell, F. A. (1999). Thinking about Inequality. Cambridge. ISBN 0-521-46696-2.
Anand, Sudhir (1983).Inequality and Poverty in Malaysia. New York: Oxford University Press.ISBN 0-19-520153-1.
Brown, Malcolm (1994). "Using Gini-Style Indices to Evaluate the Spatial Patterns of Health Practitioners: Theoretical
Considerations and an Application Based on Alberta Data".Social Science & Medicine. 38 (9): 1243–1256.
doi:10.1016/0277-9536(94)90189-9. PMID 8016689.
Chakravarty, S. R. (1990). Ethical Social Index Numbers. New York: Springer-Verlag. ISBN 0-387-52274-3.
Deaton, Angus (1997).Analysis of Household Surveys. Baltimore MD: Johns Hopkins University Press.ISBN 0-585-
23787-5.
Dixon, Philip M.; Weiner, Jacob; Mitchell-Olds, Thomas; Woodley, Robert (1987). "Bootstrapping the Gini coef
ficient of
inequality". Ecology. Ecological Society of America.68 (5): 1548–1551. doi:10.2307/1939238. JSTOR 1939238.
Dorfman, Robert (1979). "A Formula for the Gini Coef
ficient". The Review of Economics and Statistics. The MIT Press.
61 (1): 146–149. doi:10.2307/1924845. JSTOR 1924845.
Firebaugh, Glenn (2003).The New Geography of Global Income Inequality
. Cambridge MA: Harvard University Press.
ISBN 0-674-01067-1.
Gastwirth, Joseph L. (1972). "The Estimation of the Lorenz Curve and Gini Index".
The Review of Economics and
Statistics. The MIT Press. 54 (3): 306–316. doi:10.2307/1937992. JSTOR 1937992.
 Giles, David (2004). "Calculating a Standard Error for the Gini Coef
ficient: Some Further Results"(PDF). Oxford Bulletin
of Economics and Statistics. 66 (3): 425–433. doi:10.1111/j.1468-0084.2004.00086.x.
Gini, Corrado (1912). Variabilità e mutabilità. Reprinted in Pizetti, E.; Salvemini, T., eds. (1955). Memorie di metodologica
statistica. Rome: Libreria Eredi Virgilio Veschi.
Gini, Corrado (1921). "Measurement of Inequality of Incomes".The Economic Journal. Blackwell Publishing.31 (121):
124–126. doi:10.2307/2223319. JSTOR 2223319.
Giorgi, Giovanni Maria (1990)."Bibliographic portrait of the Gini concentration ratio"(PDF). Metron. 48: 183–231.
Karagiannis, E.; Kovacevic, M. (2000). "A Method to Calculate the Jackknifeariance
V Estimator for the Gini Coefficient".
Oxford Bulletin of Economics and Statistics. 62: 119–122. doi:10.1111/1468-0084.00163.
Mills, Jeffrey A.; Zandvakili, Sourushe (1997). "Statistical Inference via Bootstrapping for Measures of Inequality"(PDF).
Journal of Applied Econometrics. 12 (2): 133–150. doi:10.1002/(SICI)1099-1255(199703)12:2<133::AID-
JAE433>3.0.CO;2-H. JSTOR 2284908.
Modarres, Reza; Gastwirth, Joseph L. (2006). "A Cautionary Note on Estimating the Standard Error of the Gini Index of
Inequality". Oxford Bulletin of Economics and Statistics. 68 (3): 385–390. doi:10.1111/j.1468-0084.2006.00167.x.
Morgan, James (1962). "The Anatomy of Income Distribution".The Review of Economics and Statistics. The MIT Press.
44 (3): 270–283. doi:10.2307/1926398. JSTOR 1926398.
Ogwang, Tomson (2000). "A Convenient Method of Computing the Gini Index and its Standard Error".Oxford Bulletin of
Economics and Statistics. 62: 123–129. doi:10.1111/1468-0084.00164.
Ogwang, Tomson (2004). "Calculating a Standard Error for the Gini Coefficient: Some Further Results: Reply".Oxford
Bulletin of Economics and Statistics. 66 (3): 435–437. doi:10.1111/j.1468-0084.2004.00087.x.
Xu, Kuan (January 2004)."How Has the Literature on Gini's Index Evolved in the Past 80 ears?"
Y (PDF). Department of
Economics, Dalhousie University. Retrieved 1 June 2006. The Chinese version of this paper appears inXu, Kuan (2003).
"How Has the Literature on Gini's Index Evolved in the Past 80 ears?".
Y China Economic Quarterly. 2: 757–778.
Yitzhaki, Shlomo (1991). "Calculating Jackknife Variance Estimators for Parameters of the Gini Method".Journal of
Business and Economic Statistics. American Statistical Association.9 (2): 235–239. doi:10.2307/1391792.
JSTOR 1391792.

External links
Deutsche Bundesbank:Do banks diversify loan portfolios?, 2005 (on using e.g. the Gini coefficient for risk evaluation of
loan portfolios)
Forbes Article, In praise of inequality
Measuring Software Project Risk With The Gini Coef ficient, an application of the Gini coefficient to software
The World Bank: Measuring Inequality
Travis Hale, University of Texas Inequality Project:The Theoretical Basics of Popular Inequality Measures , online
computation of examples:1A, 1B
Article from The Guardian analysing inequality in the UK 1974–2006
World Income Inequality Database
Income Distribution and Poverty in OECD Countries
U.S. Income Distribution: Just How Unequal?

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