Question

Explain to me exactly what a Gini Coefficient is. What is the exact procedure by which you would calculate a Gini Coefficient from actual data? Why is the Gini Coefficient a “good” or “reasonable” measure of inequality?

Answer 1

Answer:

Corrado Gini an italian statistician who developed the concept. The Gini Coefficient is used to measure the extend of inequality in the distribution of income and wealth in the a country as it develops. The value of inequality (value of Gini Coefficient) will lies in between 0 and 1. The value 0 represents perfect equality in the distribution and 1 represents perfect inequality.

Calculating the Gini Coefficient 100 Perfect Equality Line Percentage of Income Lorenz Curve Percentage of Population 100

The Gini Coefficient can be calculted as shown above. A sqare is divided by a 45 degree line and the line is known as perfect equality line. The curved line which divides the pink shaded area (Area below the perfect equality line) and gray colour shaded area is the Lorenz Curve. We should enter the values of the variables we want to measure in the two axes ( in this figure it is Percentage of income and Percentage of population). The inequality will increase with increase in the difference between the perfect equality line and the Lorenz Curve. The Gini Coefficient can be calculated by dividing the area between the Perfect Equality Line and Lorenz Cure (Pink shaded area) with the sum of the area between the Perfect Equality Line and the Area below the Lorenz Curve(Gray Shaded area).

The Gini Coefficient is a good measure of inequality . It measures how far the income and wealth in a country is dispersed. We can calculate the disparity in the distribution of income or wealth in a country with respect to its population. It is an easy method to calculate inequality effectively.