The Gini coefficient is a statistical concept and measure of economic inequality, primarily used to represent the income, wealth, or consumption inequality within a nation or social group. It was developed by Italian statistician and sociologist Corrado Gini and published in his 1912 paper Variabilità e mutabilità (Variability and mutability) to quantify the dispersion of income or wealth. The coefficient solved the problem of summarizing complex distribution data into a single, comparable number.
The mechanism is based on the Lorenz curve, a graphical representation developed by Max Lorenz in 1905, which plots the cumulative share of income (y-axis) against the cumulative share of the population (x-axis). The Gini coefficient is calculated as the ratio of the area between the Lorenz curve and the line of perfect equality (the 45-degree line) to the total area under the line of perfect equality. The value ranges from 0 (representing perfect equality, where everyone has the same income) to 1 (representing maximal inequality, where one person has all the income).
It connects directly to the Lorenz curve and is a key metric used by international bodies like the World Bank and the OECD. Related concepts include the Palma ratio, a newer metric that focuses on the income gap between the top 10% and the bottom 40% of the population. While the core definition remains the same, recent changes involve statistical offices integrating administrative data with surveys to better capture the income of top earners, who are often underreported. Furthermore, in India, the Gini is often calculated based on consumption, which can understate the true level of income inequality.