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What is a Gini Index?

Article Details
• Written By: Toni Henthorn
• Edited By: W. Everett
2003-2017
Conjecture Corporation
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A Gini index, or Gini coefficient, is a statistical representation of the relative distribution of a resource throughout a population. Most commonly, the Gini index indicates the degree of equality with respect to distribution of assets or income. The index ranges from values of zero to one, with a value of zero indicating perfectly equitable distribution of the resource. Sometimes statisticians multiply the index by 100, making the potential distribution range from zero to 100. Globally, economists have calculated the Gini indices for different countries, with the range falling between 25, with the most equitable income distribution being in Denmark, and 70, with the widest disparity in income being in Namibia.

The population distribution of income can be represented graphically by a Lorenz curve, with population percentages on the horizontal axis and income percentages on the vertical axis. A 45-degree line sloping upward and to the right represents a perfectly equitable distribution of income, while the Lorenz curve is a concave, upward-sloping arc falling below the line. The Gini index is the ratio of the area lying between the angled line and the Lorenz curve divided by the total area under the line. With the axis range between zero and one, the total area under the line always equals 0.5. The Gini index, therefore, is equal to twice the area between the angled line and the Lorenz curve.

Advantages of the Gini index include its versatility across different population groups. It is straightforward to use. The index does not depend on the sample used, so populations of any size may be studied. Likewise, it does not depend on the scale of the economy, so countries with small to large economies may be assessed. Finally, the Gini index does not require explicit identification of the top and low-income earners.

Even with similar Gini indices, the income distribution of different populations can be vastly different. For example, a population where the top 50 percent of earners equally share 100 percent of the income will have the same Gini index as a population where the top 25 percent shares 75 percent of the income and the bottom 75 percent shares 25 percent of the income. The Lorenz curves, however, have different shapes. If there are differences in opportunity levels or resource use efficiency, the Gini index may understate the inequality. Gini indices reflect a snapshot in time, and they do not take into account changes in income over different life stages.

Gini indices may be used to examine trends over time. The first Gini index was reported in the United States at 39.7 for the year 1967. Since then, the Gini index has risen steadily in the ensuing decades to a value of 46.3 in 2006. This trend may be due to the country becoming more economically diverse or due to an influx of poor immigrants, thereby skewing the distribution.