Glossary

Gini coefficient

Gini coefficient:

The Gini coefficient is used in economics to measure income inequality. Generally speaking, it is used to measure the extent of departure from a perfectly even distribution of income. A “0” indicates no departure, i.e. everyone has the same income. A “1” indicates complete departure – all income falls into an infinitely small group.

Here´s how it´s calculated. Arrange all the income groups into ascending order of income; for each group find proportion X_i of this and lower income groups into the whole population and the corresponding share Y_i of income, for example, bottom 0.1 (X₁) have 0.01 (Y₁) of income, bottom 0.3 (X₂) have 0.07 (Y₂) of income, etc; then

G =

N
ÃƒÂ¥
i=1

2(X_i–Y_i) DX_i

where DX_i = X_i – X_i-1 (assuming X₀ = 0). Gini coefficient can be calculated for any number of groups, and the groups may be of different sizes, e.g 4 groups with proportions in the whole population 0.1, 0.3, 0.4, 0.2.

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