The Gini coefficient, also called the Gini index or Gini ratio, is the most commonly used measure of income distribution—simply put, the higher the Gini coefficient, the greater the gap between the incomes of a country's richest and poorest people. A country's Gini coefficient is important because it helps identify high levels of income inequality, which can have several undesirable political and economic impacts. These include slower GDP growth, reduced income mobility, greater household debt, political polarization, and higher poverty rates.
Explaining the Gini coefficient
Developed by Italian statistician Corrado Gini in 1912, the Gini coefficient ranges from 0 to 1, but is often written as a percentage. To offer two hypothetical examples, if a nation were to have absolute income equality, with every person earning the same amount, its Gini score would be 0 (0%). On the other hand, if one person earned all the income in a nation and the rest earned zero, the Gini coefficient would be 1 (100%). Mathematically, the Gini coefficient is defined based on the Lorenz curve. The Lorenz curve plots the percentiles of the population on the graph's horizontal axis according to income or wealth, whichever is being measured. The cumulative income or wealth of the population is plotted on the vertical axis.
Limitations of the Gini coefficient
While the Gini coefficient is a useful tool for analyzing the wealth or income distribution in a country, it does not indicate that country's overall wealth or income. Some of the world's poorest countries, such as the Central African Republic, have some of the highest Gini coefficients (61.3 in this case). A high-income country and a low-income country can have the same Gini coefficients. Additionally, due to limitations such as reliable GDP and income data, the Gini index may overstate income inequality and be inaccurate.
Countries with the highest and lowest Gini coefficients
South Africa ranks as the country with the lowest level of income equality in the world, thanks to a Gini coefficient of 63.0 when last measured in 2014. That said, in 2005, the Gini coefficient was even higher, at 65.0. In South Africa, the richest 10% hold 71% of the wealth, while the poorest 60% hold just 7% of the wealth. Additionally, more than half of South Africa's population lives in poverty.
Top 10 Countries with the Highest Gini Coefficients (%) - World Bank:
- South Africa - 2014 - 63.0
- Namibia - 2015 - 59.1
- Suriname - 1999 - 57.9
- Zambia - 2015 - 57.1
- Sao Tome and Principe - 2017 - 56.3
- Central African Republic - 2008 - 56.2
- Eswatini - 2016 - 54.6
- Mozambique - 2014 - 54.0
- Brazil - 2019 - 53.4
- Belize - 1999 - 53.3
Now for the good news:
Top 10 Countries with the Lowest Gini Coefficients (%) - World Bank:
- Slovenia - 2018 - 24.6
- Czech Republic - 2018 - 25.0 (tie)
- Slovakia - 2018 - 25.0 (tie)
- Belarus - 2019 - 25.3
- Moldova - 2018 - 25.7
- United Arab Emirates - 2018 - 26.0
- Iceland - 2017 - 26.1
- Azerbaijan - 2005 - 26.6 (tie)
- Ukraine - 2019 - 26.6 (tie)
- Belgium - 2018 - 27.2
Nordic and Central Eastern European countries dominate this list, claiming seven of the top 10 slots. Inequality is generally lower in Europe than elsewhere in the world, and the Gini coefficient offers quantifiable proof of that fact. The United States has a Gini coefficient of 41.1. In 2015, the top 1% of earners in the United States averaged 40 times more income than the bottom 90%. In the U.S., poverty is a growing issue, where an estimated 12.3-17.8 percent below the poverty level (see Poverty Rate by Country). Many of these low-wage workers live paycheck-to-paycheck and have no sick days, pension, or health insurance.
The Gini coefficient saw sustained growth during the 19th and 20th centuries. In 1820, the global Gini coefficient was 0.50, and in 1980 and 1992, the figure was 0.657. According to World Bank's Poverty and Shared Prosperity 2020 report, the Gini coefficient increases about 1.5 points in the five years following major epidemics, such as H1N1 (2009), Ebola (2014), and Zika (2016). While the effects of the COVID-19 pandemic are still being calculated, early estimates predicted an increase in Gini coefficient of 1.2-1.9 percentage points per year for 2020 and 2021, signaling an increase in income inequality.