GINI RATIO

Summary

The Gini ratio, or Gini coefficient, measures income inequality within a population. Based on the Lorenz Curve, it compares the distribution of income against a uniform distribution. The Gini coefficient ranges from 0 (perfect equality) to 1 (complete inequality). The ratio is derived from the area between the Lorenz Curve and the diagonal line of perfect equality. A Gini coefficient closer to 0 indicates more equal income distribution, while values closer to 1 represent greater inequality. The coefficient is categorized as low inequality (below 0.4), moderate inequality (0.4–0.5), and high inequality (above 0.5).

Takeaways

• 😀 The Gini ratio, or Gini coefficient, measures income inequality within a population based on the Lorenz curve.
• 😀 The Lorenz curve compares cumulative income distribution against a perfectly equal distribution, representing uniform population percentages.
• 😀 A Gini coefficient value ranges from 0 to 1, with 0 representing perfect equality and 1 indicating maximum inequality.
• 😀 The Gini coefficient can be calculated by finding the ratio of the area between the diagonal line (representing perfect equality) and the Lorenz curve.
• 😀 The x-axis of the Lorenz curve represents cumulative population percentages, while the y-axis shows the percentage of total income received by each population group.
• 😀 The diagonal line in the Lorenz curve represents perfect equality, where each percentage of the population receives an equal percentage of income.
• 😀 The greater the distance between the Lorenz curve and the diagonal line, the higher the level of inequality.
• 😀 Conversely, the closer the Lorenz curve is to the diagonal, the greater the equality in income distribution.
• 😀 A Gini coefficient less than 0.4 indicates low inequality, while a coefficient between 0.4 and 0.5 signals moderate inequality.
• 😀 A Gini coefficient greater than 0.5 indicates high income inequality within the population.

Q & A

What is the Gini ratio or Gini coefficient?

The Gini ratio, or Gini coefficient, is a measure of the degree of inequality in the distribution of a certain variable, such as income, within a population.

What is the basis for calculating the Gini coefficient?

The Gini coefficient is based on the Lorenz curve, which is a cumulative expenditure curve comparing the distribution of a variable, such as income, with a uniform distribution representing cumulative percentages of the population.

What does the Lorenz curve represent?

The Lorenz curve represents the cumulative distribution of a variable, such as income, showing the percentage of total income received by cumulative percentages of the population.

What does the diagonal line in the Lorenz curve represent?

The diagonal line in the Lorenz curve represents perfect equality in income distribution, where each percentage of the population receives an equal percentage of total income.

How is the Gini coefficient calculated?

The Gini coefficient is calculated by finding the ratio of the area between the diagonal line and the Lorenz curve to the total area under the diagonal line.

What do the axes of the Lorenz curve represent?

The horizontal axis represents the cumulative percentage of the population, while the vertical axis represents the cumulative share of total income received by the corresponding percentage of the population.

What does a larger distance between the Lorenz curve and the diagonal line indicate?

A larger distance between the Lorenz curve and the diagonal line indicates a higher degree of income inequality, meaning the distribution is more unequal.

What does a smaller distance between the Lorenz curve and the diagonal line indicate?

A smaller distance between the Lorenz curve and the diagonal line indicates a higher degree of income equality, meaning the distribution is more even.

How is the level of income inequality categorized based on the Gini coefficient?

Income inequality is categorized as low if the Gini coefficient is below 0.4, moderate if it is between 0.4 and 0.5, and high if it exceeds 0.5.

What is the significance of a Gini coefficient close to 0?

A Gini coefficient close to 0 indicates a perfectly equal distribution of income, where everyone receives the same amount.