what is the gini index 
the gini index determines a nation s level of income inequality by measuring the income distribution or wealth distribution across its population the gini index was developed in 1912 by italian statistician corrado gini the coefficient of the gini index ranges from 0 or 0 to 1 or 100 with 0 representing perfect equality and 1 representing perfect inequality the nation of south africa has the world s worst level of income inequality at a gini index ranking of 63 0 according to the world bank norway had the lowest level of income inequality at 22 7 the level of income inequality in the u s was 39 8 ellen lindner investopediaunderstanding the gini indexa country in which every resident has the same income would have an income gini coefficient of 0 a country in which one resident earned all the income while everyone else earned nothing would have an income gini coefficient of 1 the same analysis can apply to wealth distribution the wealth gini coefficient but because wealth is more difficult to measure than income gini coefficients usually refer to income and are reported simply as the gini coefficient or gini index without specifying that they refer to income wealth gini coefficients tend to be much higher than those for income even in affluent countries the gini index measures net income rather than net worth so a nation s wealth can be concentrated in the hands of a small number of people even if income distribution is relatively equal the gini coefficient is an important tool for analyzing income or wealth distribution within a country or region but it should not be mistaken for an absolute measurement of income or wealth a high income country and a low income country can have the same gini coefficient as long as incomes are distributed similarly within each for example turkey and the united states have nearly identical gini coefficients according to the organisation for economic co operation and development oecd despite turkey s vastly lower gross domestic product gdp per person graphical representation of the gini indexthe gini index is often represented graphically through the lorenz curve as depicted below which shows income or wealth distribution by plotting the population percentile by income on the horizontal axis and cumulative income on the vertical axis the gini coefficient is equal to the area below the line of perfect equality 0 5 by definition minus the area below the lorenz curve divided by the area below the line of perfect equality in other words it is double the area between the lorenz curve and the line of perfect equality the gini index around the worldthe gini coefficient showed a sustained growth in inequality worldwide during the 19th and 20th centuries in 1820 the global gini coefficient stood at 0 50 while in 1980 and 1992 the figure was 0 657 a later estimate by the world inequality lab from 2020 estimates the global gini coefficient at 0 67 source the world bankcovid 19 had a further negative impact on income equality according to the world bank the gini coefficient increased by about 1 5 points in the five years following major epidemics such as ebola and zika economists believe covid 19 triggered an increase of 0 5 points in the gini coefficient from 2019 to 2020 the largest single year increase in global inequality since world war ii below are the income gini coefficients of every country for which the u s central intelligence agency cia world factbook provides data some of the world s poorest countries have some of the world s highest gini coefficients while many of the lowest gini coefficients are found in wealthier european countries however the relationship between income inequality and gdp per capita is not one of perfect negative correlation and the relationship has varied over time michail moatsos of utrecht university and joery baten of tuebingen university show that from 1820 to 1929 inequality rose slightly then tapered off as gdp per capita increased from 1950 to 1970 inequality tended to fall as gdp per capita rose above a certain threshold from 1980 to 2000 inequality fell with higher gdp per capita then curved back up sharply limitations of the gini indexthough useful for analyzing economic inequality the gini coefficient has some shortcomings the metric s accuracy is dependent on reliable gdp and income data shadow economies and informal economic activity are present in every country informal economic activity tends to represent a larger portion of true economic production in developing countries and at the lower end of the income distribution within countries in both cases this means that the gini index of measured incomes will overstate true income inequality accurate wealth data is even more difficult to come by due to the popularity of tax havens that obscure the amounts of money held by the wealthiest another flaw is that very different income distributions can result in identical gini coefficients because the gini attempts to distill a two dimensional area the gap between the lorenz curve and the equality line down to a single number it obscures information about the shape of inequality in everyday terms this would be similar to describing the contents of a photo solely by its length along one edge or the simple average brightness value of the pixels though using the lorenz curve as a supplement can provide more information in this respect it also does not show demographic variations among subgroups within the distribution such as the distribution of incomes across age race or social groups in that vein understanding demographics can be important for understanding what a given gini coefficient represents for example a large retired population pushes the gini higher 