The Gini Coefficient and Personal Inequality Measurement

James Davies

No 20161, University of Western Ontario, Departmental Research Report Series from University of Western Ontario, Department of Economics

Abstract: The Gini coefficient is the most popular inequality index. It is based on the sum of pairwise absolute income differences, which can be viewed as taking a separate sum for each individual of the differences between his/her income and others’, and then adding up those separate sums. The differences vis-à-vis people with lower income can be used to construct an individual’s advantage, while the differences with respect to people with higher incomes generate the individual’s deprivation. Deprivation and advantage can be weighted differently, producing a whole family of “Gini admissible” personal inequality indexes. The population average of any one of the latter equals the Gini coefficient. The properties of the personal inequality indexes explain the sensitivity of the Gini coefficient to transfers in different ranges of the income distribution. They also throw light on individual views of secular changes in income distribution interesting for their own sake. For example, throughout the change from a traditional to a modern economy that gives rise to the Kuznets curve, those in the traditional sector believe that inequality is constantly increasing while those in the modern sector believe the opposite. Personal views about polarization and rising inequality, as seen in most high income countries in recent decades, are also illuminated.

Date: 2016
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