The Gini coefficient measures wealth distribution within a country, with a higher number indicating greater inequality. It is calculated using a graph of income and population share percentages, with the area of the gap divided by total wealth. The coefficient ranges from 0.0 to 1.0, with 0.0 representing perfect distribution and 1.0 representing ultimate inequality. The coefficient can be used to compare countries and analyze trends over time.
The Gini coefficient is a useful statistic for measuring the distribution of wealth within a nation. In terms of this statistic, the higher the number, which varies between 0.0 and 1.0, the greater the degree of wealth inequality. Using the Gini coefficient, different countries can be compared with others in terms of even distribution of wealth. It can also reveal economic trends in a single country for a predetermined period.
Created by the Italian statistician Corado Gini, the Gini coefficient is often expressed using a graph of a nation’s wealth distribution. This graph plots income share percentage on the vertical axis and population share percentage on the horizontal axis. A straight diagonal line from the bottom left corner of the graph to the top right corner represents a perfect distribution of wealth. The real distribution of wealth in the country is represented by a curved line, which results from the inequality of distribution.
This curve, known as the Lorenz Curve of income distribution, will sink below the straight diagonal line. How much it sinks below is a measure of wealth inequality. The area of the gap is then divided by the total wealth of the country to arrive at the Gini coefficient.
When the coefficient is calculated for a specific country, the number generated by the equation always falls between 0.0 and 1.0. This is because 0.0 represents a country with perfect wealth distribution, meaning that every individual in the country has exactly the same amount of money. A coefficient of 1.0 represents the ultimate in wealth inequality, as this would mean that one individual owns all the wealth in the entire country and no one else owns it. As the coefficient increases, so does wealth inequality in a given country.
Practical uses of the Gini coefficient include comparing different countries and analyzing trends within a given country. The Gini coefficient has historically varied from a minimum of approximately 0.2 to a maximum of approximately 0.6 for countries in Latin America and Central America, where a wealthy elite contrasts with a large number of poor citizens. Studying the Gini level for countries over a period of time can also reveal relevant trends. For example, a country that switched from communism to a capitalist economy would likely see its coefficient rise after the switch.
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