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Gini Index

The Gini index, also known as the Gini coefficient, measures income or wealth inequality within a population. It is named after the Italian statistician Corrado Gini, who developed the concept in 1912. The Gini index ranges from 0 to 1, where 0 represents perfect equality (everyone has the same income or wealth), and 1 represents perfect inequality (one person or household has all the income or wealth, while others have none).

What You Need To Know

Economists and policymakers often use the Gini index to analyze and compare income or wealth distribution among different countries or regions. It helps identify disparities in economic well-being and assess the degree of inequality within a society. However, it is a snapshot of inequality at a specific point in time and does not provide insights into the underlying causes of inequality.

Here's how the Gini index is calculated:

  • A population is ranked from lowest to highest income or wealth.
  • The cumulative share of income or wealth is calculated for each percentile.
  • The Gini index is then computed as the area between the Lorenz curve (the actual cumulative income/wealth distribution) and the line of perfect equality (a diagonal line representing equal distribution), divided by the total area under the line of perfect equality.

A Gini index close to 0 indicates more equal distribution, while a Gini index closer to 1 suggests greater inequality. For instance, a Gini index of 0.25 indicates relatively low inequality, while an index of 0.50 or higher indicates significant inequality.