Key Takeaways: Economic Inequality

The Gini index, or Gini coefficient, is a measure of the distribution of income
across a population developed by the Italian statistician Corrado Gini in 1912.

It is often used as a gauge of economic inequality, measuring income
distribution or, less commonly, wealth distribution among a population. The
coefficient ranges from 0 (or 0%) to 1 (or 100%), with 0 representing perfect
equality and 1 representing perfect inequality. Values over 1 are theoretically
possible due to negative income or wealth.
KEY TAKEAWAYS
 The Gini index is a measure of the distribution of income across a

population.
 A higher Gini index indicates greater inequality, with high income
individuals receiving much larger percentages of the total income of the
population.
 Global inequality as measured by the Gini index increased over the 19th
and 20th centuries, but has declined in more recent years.
 Because of data and other limitations, the Gini index may overstate
income inequality and can obscure important information about income
distribution.
Understanding the Gini Index
A country in which every resident has the same income would have an income
Gini coefficient of 0. A country in which one resident earned all the income,
while everyone else earned nothing, would have an income Gini coefficient of
1.
The same analysis can be applied to wealth distribution (the "wealth Gini
coefficient"), but because wealth is more difficult to measure than income, Gini
coefficients usually refer to income and appear simply as "Gini coefficient" or
"Gini index," without specifying that they refer to income. Wealth Gini
coefficients tend to be much higher than those for income.
The Gini coefficient is an important tool for analyzing income or

wealth distribution within a country or region, but it should not be mistaken for
an absolute measurement of income or wealth. A high-income country and a
low-income one can have the same Gini coefficient, as long as incomes are
distributed similarly within each: Turkey and the U.S. both had income Gini
coefficients around 0.39-0.40 in 2016, according to the OECD, though
Turkey's GDP per person was less than half the U.S.'s (in 2010 dollar terms).
Graphical Representation of the Gini Index

The Gini index is often represented graphically through the Lorenz curve, which shows
income (or wealth) distribution by plotting the population percentile by income on the
horizontal axis and cumulative income on the vertical axis. The Gini coefficient is equal to
the area below the line of perfect equality (0.5 by definition) minus the area below the Lorenz
curve, divided by the area below the line of perfect equality. In other words, it is double the
area between the Lorenz curve and the line of perfect equality.
In the graph below, the 47th percentile corresponds to 10.46% in Haiti and 17.42% in
Bolivia, meaning that the bottom 47% of Haitians take in 10.46% of their nation's total
income and the bottom 47% of Bolivians take in 17.42% of theirs. The straight line
represents a hypothetically equal society: the bottom 47% take in 47% of national income.
To estimate the income Gini coefficient for Haiti in 2012, we would find the area below its
Lorenz curve: around 0.2. Subtracting that figure from 0.5 (the area under the line of
equality), we get 0.3, which we then divide by 0.5. This yields an approximate Gini of 0.6 or
60%. The CIA gives the actual Gini for Haiti in 2012 as 60.8% (see below). This figure
represents extremely high inequality; only Micronesia, the Central African Republic, South
Africa, and Lesotho are more unequal, according to the CIA.
Another way of thinking about the Gini coefficient is as a measure of deviation from perfect
equality. The further a Lorenz curve deviates from the perfectly equal straight line (which
represents a Gini coefficient of 0), the higher the Gini coefficient and the less equal the
society. In the example above, Haiti is more unequal than Bolivia.
The Gini Index Around the World

Global Gini
Christoph Lakner of the World Bank and Branko Milanovic of the City University of New
York estimate that the global income Gini coefficient was 0.705 in 2008, down from 0.722 in
1988. Figures vary considerably, however. DELTA economists François Bourguignon and
Christian Morrisson estimate that the figure was 0.657 in both 1980 and 1992. Bourguignon
and Morrisson's work shows a sustained growth in inequality since 1820 when the global
Gini coefficient was 0.500. Lakner and Milanovic's shows a decline in inequality around the
beginning of the 21st century, as does a 2015 book by Bourguignon:
Source: World Bank.
Economic expansion in Latin America, Asia, and Eastern Europe has driven much of the
recent decline in income inequality. While inequality between countries has fallen in recent
decades, however, inequality within countries has risen.
Gini Within Countries
Below are the income Gini coefficients of every country for which the CIA World
Factbook provides data:
Some of the world's poorest countries (Central African Republic) have some of the world's
highest Gini coefficients (61.3), while many of the wealthiest (Denmark) have some of the
lowest (28.8). Yet the relationship between income inequality and GDP per capita is not one
of perfect negative correlation, and the relationship has varied over time. Michail Moatsos
of Utrecht University and Joery Baten of Tuebingen University show that from 1820 to 1929,
inequality rose slightly – then tapered off – as GDP per capita increased. From 1950 to 1970,
inequality tended to fall off as GDP per capita rose above a certain threshold. From 1980 to
2000 inequality fell with higher GDP per capita then curved back up sharply.
Correlation between Gini coefficients and GDP per capita in three time periods.

Source: Moatsos and Baten.
Shortcomings
Though useful for analyzing economic inequality, the Gini coefficient has some
shortcomings. The metric's accuracy is dependent on reliable GDP and income data. Shadow
economies and informal economic activity are present in every country. Informal economic
activity tends to represent a larger portion of true economic production in developing
countries and at the lower end of the income distribution within countries. In both cases this
means that the Gini index of measured incomes will overstate true income inequality.
Accurate wealth data is even more difficult to come by due to the popularity of tax havens.
Another flaw is that very different income distributions can result in identical Gini
coefficients. Because the Gini attempts to distill a two dimensional area (the gap between the
Lorenz curve and the equality line) down in to a single number, it obscures information about
the "shape" of inequality. In everyday terms, this would be similar to describing the contents
of a photo solely by it's length along one edge, or the simple average brightness value of the
pixels. While using the Lorenz curve as a supplement can provide more information in this
respect, it also does not show demographic variations among subgroups within the
distribution, such as a the distribution of incomes across age, race, or social groups. In that
vein, understanding demographics can be important for understanding what a given Gini
coefficient represents. For example, a large retired population pushes the Gini higher.
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Related Terms
Lorenz Curve
The Lorenz curve is a graphical representation of wealth or income
distribution.
more
How Income Inequality Works
Income inequality is how unevenly income is distributed throughout a
population. The less equal the distribution, the higher income inequality is.
more
Gross Domestic Product (GDP)
Gross domestic product (GDP) is the monetary value of all finished goods and
services made within a country during a specific period.
more
Per Capita GDP Definition
Per capita GDP is a metric that breaks down a country's GDP per person and
is calculated by dividing the GDP of a country by its population.
more
The meaning of the term Third World
Third World is an outdated and offensive phrase historically used to describe
economically developing nations.
more
Everything You Need to Know About Per Capita and Its Uses
Per capita is a Latin term that translates to "by head" and that is interpreted as
meaning per person. It is the average per person.
more

Key Takeaways: Economic Inequality

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The Gini index, or Gini coefficient, is a measure of the distribution of income

across a population developed by the Italian statistician Corrado Gini in 1912.

 The Gini index is a measure of the distribution of income across a

The Gini coefficient is an important tool for analyzing income or

Graphical Representation of the Gini Index

The Gini Index Around the World

Correlation between Gini coefficients and GDP per capita in three time periods.

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