Gini Coefficient - Gini Coefficient of Income Distributions

Gini Coefficient of Income Distributions

Gini coefficients of income are calculated on market income as well as disposable income basis. The Gini coefficient on market income - sometimes referred to as pre-tax Gini index - is calculated on income before taxes and transfers, and it measures inequality in income without considering the effect of taxes and social spending already in place in a country. The Gini coefficient on disposable income - sometimes referred to as after-tax Gini index - is calculated on income after taxes and transfers, and it measures inequality in income after considering the effect of taxes and social spending already in place in a country.

The difference in Gini indices between OECD countries, on after-taxes and transfers basis, is significantly narrower. For OECD countries, over 2008-2009 period, Gini coefficient on pre-taxes and transfers basis for total population ranged between 0.34 to 0.53, with South Korea the lowest and Italy the highest. Gini coefficient on after-taxes and transfers basis for total population ranged between 0.25 to 0.48, with Denmark the lowest and Mexico the highest. For United States, the country with the largest population in OECD countries, the pre-tax Gini index was 0.49, and after-tax Gini index was 0.38, in 2008-2009. The OECD averages for total population in OECD countries was 0.46 for pre-tax income Gini index and 0.31 for after-tax income Gini Index. Taxes and social spending that were in place in 2008-2009 period in OECD countries significantly lowered effective income inequality.

Using the Gini can help quantify differences in welfare and compensation policies and philosophies. However it should be borne in mind that the Gini coefficient can be misleading when used to make political comparisons between large and small countries or those with different immigration policies (see limitations of Gini coefficient section).

The Gini index for the entire world has been estimated by various parties to be between 0.61 and 0.68. The graph shows the values expressed as a percentage, in their historical development for a number of countries.