Gini index

economic-dictionary

The Gini index or Gini coefficient is an economic measure used to calculate the income inequality that exists between the citizens of a territory, usually a country.

The value of the Gini index is between 0 and 1, with zero being the maximum equality (all citizens have the same income) and 1 being the maximum inequality (all income is owned by a single citizen). This same concept of inequality can be understood graphically through the Lorenz curve.

Calculation of the Gini index

To calculate the index we must use the following formula:

Where:

  • X: cumulative population proportion.
  • Y: cumulative proportion of income.

It can also be calculated in a simpler and more intuitive way:

Where:

  • P: cumulative percentage of population
  • Q: cumulative percentage of income.

Continue to understand more about the measure of inequality by reading the articles:

  • Lorenz curve
  • Relationship between the Lorenz curve and the Gini index

The Gini index and economic inequality

The Gini coefficient is one of the metrics used to guide us regarding economic inequality. The higher the Gini index, the greater the income inequality in the population. That is, a few charge more than the rest of the population.

On the contrary, the closer to zero the Gini index, the lower the income inequality and, therefore, the lower the economic inequality. It is recommended that a country or region does not have Gini coefficients close to one, since that would mean that the society, monetarily speaking, is very unequal.

An unequal society is associated with a society with little economic well-being and a poor welfare state.

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