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What is Gini Coefficient?

Meaning of Gini coefficient

The Gini coefficient, created by the Italian mathematician Conrado Gini, is a statistical instrument to measure the inequality of a distribution.

Therefore, it is used to measure the difference between the income of those who have more and those who have less. The central objective is to analyze the concentration of income to current inequalities.

The Gini coefficient is defined by a ratio with values ​​between 0 and 1: the numerator is the area between the Lorenz distribution curve and the uniform distribution line; The denominator is the area under the uniform distribution line. The Gini index is the Gini coefficient expressed as a percentage, and is equal to the Gini coefficient multiplied by 100.

As mentioned in the first paragraph, this coefficient is widely used to measure income concentration and inequality.

When the index is equal to 0, it corresponds to a perfect distribution equality , that is, everyone has the same income, for example.

When the index is equal to 1, it means that the distribution inequality is perfect, that is, all income is concentrated in the hands of one person and all other people have 0 income.

But, in general, what is the Gini coefficient for? We already know that it is an important measure for income concentration.

The concentration of income is an important measure to understand the degrees of inequality in a country, a region.

Therefore, the greater the concentration of income, the greater the inequality. This also increases the difficulty of taking action to reduce inequalities.

Income inequality is directly related to social inequalities , so the coefficient is important in determining poverty levels.

Over time, monitoring a country’s Gini coefficient, for example, indicates whether efforts have been made to reduce inequality, whether it is maintained or whether it has increased.

Another question to ask yourself is: how much lower is the Gini coefficient, the greater is the wealth of the country? Not necessarily, some countries may have a good Gini coefficient that indicates that the few existing resources in the country are equally distributed.

The conclusions about the social inequalities related to the coefficient need more aspects to really produce a reliable analysis of the reality studied.

Therefore, before drawing conclusions about the results of the Gini coefficient, it is necessary to know the reality that it evaluates.

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