The Gini coefficient was developed by the Italian Corrado Gini in 1912. This coefficient was invented to study the degree of inequality in the income distribution among the population. The value of this inequality is between zero and one. Perfect inequality represents one, while perfect distribution (= equality) represents zero. The Gini coefficient can be represented graphically using the Lorenz curve. How did the Italian Corrado Gini come up with the idea of this invention? How is this coefficient calculated? What are important phenomena in income (in)equality according to the OECD?
Lorenz curve
The Lorenz curve was developed by Max Otto Lorenz in 1905 to reflect the income (in)equality of a population. Max. O Lorenz was born on September 19, 1876 and died on July 1, 1959. He studied at the University of Wiscinson and as a doctoral student published ‘the economy of railroad rates’, in which he mentioned the Lorenz curve, which was intended to measure income inequality. to represent a population. The Lorenz curve therefore represents the relationship between the cumulative percentage of the size of the population and the cumulative percentage of incomes of this population. Income means the acquisition of rent, interest, profit and other financial income. We must therefore make an important comment here, because the Lorenz curve only takes into account stated tax statistics and is therefore not 100 percent reliable. In some cases, not everyone is included in the population statistics.
Example Lorenz curve
The graph below is an example of what a Lorenz curve can look like. The straight line through 0 reflects what it would be like if incomes were distributed completely equally among the population. For example, 50 percent of the population who earn an income also own 50 percent of the income. The bottom purple curve shows what it is really like in reality. We see that in this example 50 percent of the population that earns an income owns 28 percent of the total income.
Source: DJ Ronner, Wikimedia Commons (Public domain)
Corrado Gini
Corrado Gini was an Italian statistician, demographer and sociologist who lived from May 23, 1884 to March 13, 1962. He made history by inventing the Gini coefficient in 1912, which served to calculate income inequality relative to the population. He published this in his work ‘Variabilità e mutabilità’, which became famous not much later. Corrado Gini studied biology, mathematics and economics at the University of Bologna in addition to law. After this he would specialize in statistics and sociology. In addition to these interests, Gini was also a well-known proponent of fascism (one political party or person has all the power) and wrote ‘The Scientific Basis of Fascism’ in 1927. From 1922 to 1943, Benito Mussolini was the fascist leader, and although he and Benito had a common interest in demography, he did not agree with Benito Mussolini’s policies. He felt that Mussolini manipulated and controlled the population too much.
The Gini coefficient
To calculate the Gini coefficient, we must divide the area between the straight line and the bottom purple curve by the sum of this area with the area under the purple curve. If the area between the straight line and the purple curve is ,A, and the area under the purple curve is ,B,, this means that we divide A by (A+B). If the Gini coefficient is zero, this means that everyone would have the same income, while if it is equal to one, only one person would have all the income.
Some key OECD statistics
Belgium and the Netherlands 2015
According to the latest statistics from the OECD (Organization for Economic Co-operation and Development), Belgium has a Gini coefficient of 0.26 and the Netherlands 0.287. This means they are both doing better than nearby countries: Germany (0.29), France (0 .31) and the United Kingdom (0.34). An important factor why the coefficient has increased very little in the Netherlands and Belgium has to do with the more or less equal tax distribution among the population.
Comparison since 1985
Compared to 1985, the Gini coefficient for Belgium has only increased by 0.004. The Netherlands and France complete this top 3 with 0.010 each. If this is compared with the average increase of the OECD countries (0.03) during this period, this is very little. The strongest increase since 1985 is the United States with 0.050. Finland and Sweden also saw a striking increase in inequality of 0.06.