Appendix A - The Gini coefficient, inequality, and value-claims

Summary

The Gini coefficient is a summary measure of inequality that has been widely employed by economists, other social scientists, and policymakers. Among the various ways to estimate inequality, the Gini coefficient is relatively straightforward to calculate. Its value can fall anywhere from 0 to 1, with values close to 0 indicating little inequality and values nearer to 1 reflecting higher levels of inequality. This appendix discusses some of the analytical and normative questions associated with its use.

The Gini coefficient is most easily conceptualized geometrically, as in figure A.1. In this figure, the proportion of the population is plotted against the population's cumulative holdings of a particular good. Along the x-axis, the cumulative proportion of the population is plotted, from left to right. The population is ordered according to their share of the given good: People with the smallest share are closest to the origin, while those with the greatest share are located to the far right. The cumulative proportion of that population's holdings of the good are represented along the y-axis.

The resulting curve is called the Lorenz curve. At each point of the Lorenz curve, the share of the good held by some proportion of the population is indicated. For instance, the “bottom” 40 percent, or 0.40, of the population might hold 20 percent, or 0.20, of a country's annual income.