The meaning of the Gini index, or Gini coefficient is an indicator developed by the Italian statistician Correado Gini that is used to measure the level of inequality between the inhabitants of a territory, which is usually a country. In general, its use is concentrated in the field of economía to analyze the differences in income of the inhabitants of a region, although the method for the distribution of inequality is also applied in other fields such as chemistry, engineering or health.
The Gini coefficient will consist of a number between 0 and 1, where 0 refers to complete equality, where all inhabitants have the same income, while when a value is registered, full inequality is reached, in where a single person has all the income and the rest nothing.
Calculate the Gini index
The main objective of the Gini coefficient is to help administrations when guiding their public policies to achieve greater economic development and equality among the inhabitants of a territory, as well as to help people with fewer resources obtain more income.
To measure inequalities, the Gini index is based on the Lorenz Curve, which is represented in a graph where:
- On the horizontal axis is the accumulated percentage of individuals or households arranged in ascending order according to their income level.
- On the vertical axis, the cumulative percentage of income received by these individuals is placed.
- The 45-degree diagonal or equidistribution line reflects the situation of perfect equality with regard to income distribution.
Some experts consider that the Gini coefficient has certain shortcomings, since it only takes into account monetary income, which can provide a somewhat biased result. Among other things, they do not show the factors that determine that equality, nor the differences in terms of living conditions in the territories, nor well-being. They are usually measured by households, so the number of members is not taken into account.
Other methods that analyze inequality are the Palma Index or the Theil Index.