What is the Gini Coefficient?
The Gini coefficient is a statistic that is useful in measuring the distribution of wealth within a nation. In terms of this statistic, the greater the number, which ranges between 0.0 and 1.0, the higher the degree of inequality of wealth. By using the Gini coefficient, different countries can be compared to another in terms of how evenly wealth is distributed. It can also reveal economic trends within a single country over a predetermined period of time.
Created by Italian statistician Corado Gini, the Gini coefficient is often expressed using a graph of a nation's distribution of wealth. This graph features the percentage of income share on the vertical axis and the percentage of population share on the horizontal axis. A straight diagonal line from the graph's bottom left to the upper right represents a perfect distribution of wealth. The country's actual distribution of wealth 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 the measure of the inequality of wealth. The area of the gap is then divided by the entirety of the wealth in the country to reach the Gini coefficient.
When the coefficient is calculated for a specific country, the number generated by the equation will always fall between 0.0 and 1.0. This is because 0.0 represents a country with perfect distribution of wealth, meaning that every individual in the country has the exact same amount of money. A coefficient of 1.0 represents the ultimate in wealth inequality, for it would mean that one individual holds all of the wealth in the entire country and nobody else has any. As the coefficient rises, so rises the inequality of wealth in a given country.
Practical uses of the Gini coefficient include the comparison of different countries and the analysis of trends within a given country. The Gini coefficient historically ranges from a low of approximately 0.2 to a high of about 0.6 for Latin and Central American countries, where a wealthy elite contrasts with a large amount of poor citizens. Studying the Gini level for countries over a period of time may also reveal pertinent trends. For example, a country that switched from Communism to a capitalist economy would likely see their coefficient rise subsequent to the change.
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