Gini Coefficient
What is Gini Coefficient?
The Gini coefficient is a numerical measure of income or wealth inequality ranging from 0 (perfect equality) to 1 (perfect inequality).
It is calculated as the ratio of the area between the Lorenz curve and the line of perfect equality to the total area under the line of perfect equality. A higher Gini coefficient indicates greater inequality. It is commonly used to compare income distribution across countries or over time.
Gini Coefficient: a worked example
Draw the Lorenz diagram inside a 1 by 1 box. The line of perfect equality cuts that box in half, so the triangle beneath it has area 0.5. Suppose the area under a country's Lorenz curve measures 0.35. The gap between the curve and the equality line is then 0.5 - 0.35 = 0.15, and the Gini is 0.15 / 0.5 = 0.3. If inequality widens and the area under the curve shrinks to 0.30, the gap becomes 0.5 - 0.30 = 0.20 and the Gini rises to 0.20 / 0.5 = 0.4.
The mistake students make with gini coefficient
A Gini of 0.4 does not mean the richest people take 40 percent of the income, and it is not a percentage of anything. It is a ratio of two areas on a graph, so the only safe reading is comparative: 0.4 is more unequal than 0.3 and less unequal than 0.5. The percentage misreading is tempting because the figure is often rescaled and reported as 40 on a 0 to 100 scale, which looks exactly like a share of income.
Gini Coefficient questions
Can the Gini coefficient be greater than 1?
The Gini coefficient cannot exceed 1 for a standard income distribution, because the area between the Lorenz curve and the equality line can never be larger than the whole triangle beneath that line. A value of 1 would mean one household holds every dollar of income and everyone else holds none. Some sources multiply by 100 and report the same figure between 0 and 100.
Does a falling Gini coefficient mean everyone is better off?
A falling Gini coefficient means income is spread more evenly, not that anyone earned more. If high incomes drop sharply during a downturn while low incomes hold steady, the measure improves even though the average household is worse off. Gini describes the shape of a distribution and nothing about its level, so pair it with a measure such as income per person before judging.
Can two countries with the same Gini have different income distributions?
Two countries can post the same Gini coefficient with very different income distributions, because one number cannot describe a whole curve. One might have a large poor group and a flat middle while the other has a thin, very rich top, and their Lorenz curves can cross while enclosing similar areas. That is why economists report quintile shares alongside the Gini.
Formula / Example
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Common comparisons
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