The Gini index

Inequality of income is one of the most serious problems for developing countries . The more significant its scale, the more people in the country begin to feel a sense of injustice. Lack of money leads to constant anxiety for the next day, and this is fraught with various extremes.

In the twentieth century, economists have found a way to measure the sense of justice in relation to the distribution of income through various statistical methods. The Gini index is just one of such indicators. This indicator appeared in the economy as early as 1912 thanks to the Italian demographer and the statistics of Corrado Gini.

The Ginny coefficient allows us to calculate the inequality of income distribution in the country. Its values are in the range from 0 to 1. The smaller the value of the Gini index takes, the more evenly the income is distributed in the state. Conversely, if this indicator tends to unity, then most of the income is concentrated in the hands of a small part of the population.

Coefficient of Gini. Calculation

The calculation of this indicator is made using the diagram of the Lorentz curve. We denote the area bounded by the Lorentz curve and the line of perfection as A, and the area below as B. Then the Gini index will be equal to the quotient obtained from dividing A by (A + B). Since A + B = 0.5, our indicator can be calculated as follows: A = 2 * A = 1-2 * B. If we express the Lorentz ratio as a function Y = L (X), then B can be found using the integral.

The general situation in the world looks like this:

The Gini index in those countries that are part of the European bloc, such as Slovenia, Denmark, Norway, Sweden, the Czech Republic, ranges from 0.2 to 0.3. This does not mean that the incomes of all residents of these countries are on the same level, but rather the fact that the national wealth is distributed evenly. In each country there are higher, lower and middle strata of society, which have their own specific forms of property and income, but there are no clearly poor and obviously rich people.

In those countries whose economies are well developed, such as Japan, Britain, Germany, Spain, France and Portugal, the Gini coefficient averages about 0.35. The main sources of the accumulation of funds are enterprises and organizations operating in the banking and manufacturing sectors. In society, there are two main groups of the population: the more affluent and the one that is more susceptible to economic shocks and financial crises.

Countries that have a high Gini index (0.45 to 0.55 and sometimes more than 0.6) include Russia, the United States, Venezuela, Brazil, Guatemala, Namibia, El Salvador, Bolivia, Haiti and Zimbabwe. It would seem, how can such large countries as the US and Russia be on the same list as African and Latin American states? Most likely, the answer lies in the methods of eradicating inequality, which each state carries out in its own way and receives corresponding results.

As one of the ways to increase the uniformity of income distribution, it is considered to be the provision by the state of support to the education, social security and healthcare systems. This makes it possible for people with small incomes to get an education, to stay healthy and be more confident about their future.

The next method of combating inequality implies changes in the system of taxation of citizens, in particular, the introduction of progressive rates of income tax. The fixed rate of taxation of incomes of the population, which, for example, exists in Russia, leads to the fact that the poor become even poorer, and the rich continue to increase their status.

Undoubtedly, a combined approach can be used, however, new, fundamentally different ways of improving the distribution of income to the global economy are as yet unknown.