Lorenz Curves And The Gini Coefficient

GINI COEFFICIENT & ECONOMIC WELFARE

PRESENTED BY: Ashima Goel Ayushi Gupta Neha Sagar Saurav Kalia Varun Kaushik Vivek Khanna

Introduction Gini Coefficient is a measure of inequality developed by the Italian statistician Corrado

Gini published in his 1912 paper Variabilità e mutabilità It is commonly used as a measure of inequality of income or wealth.

Contd.. It is defined as a ratio and can range from 0

and 1 (0% to 100%) The Gini index is the Gini coefficient expressed as a percentage. Gini index = gini coefficient *100

Calculation The Ginicoefficient is calculated as a ratio of

areas on the Lorenz curve diagram. for Gini coefficient to be an unbiased estimate of the true population value, it should be multiplied by n/(n-1).

Problems In Measurement Comparing income distributions among countries may be difficult because benefits systems may differ. The measure will give different results when applied to individuals instead of households As for all statistics, there may be systematic and random errors in the data. countries may collect data differently

Lorenz curve History Definition

Inequality by

Lorenz Curve

GINI COEFFICENT &

Importance of Gini coefficient Ø It measures inequality by ratio analysis. Ø Used to compare different income distribution in sectors Ø It can easily be interpreted Ø Satisfies principles like anonymity, scale independence ,population independence , transfer principle.

Limitations of GINI coefficient Ø Does not work for large population Ø Economies with same gini and income can have income variance. Ø Only measures current income rather life time Ø Does not include wealth income Ø Must be cared with respect as measure of egalitarianism Ø More focus on time Ø Growth of income cannot be measured