Ginni Index

1) The Gini Index is a measure of statistical deviation developed by Italian statistician Corrado Gini.

2) It is used as a measure to observe income inequality in an economy by studying the distribution of income.

3) The index value ranges from 0 to 1. A value of 0 represents a society in which every individual earns exactly the same income while a value of 1 represents a society in which one individual has earned all the income while the rest earn nothing.

4) The major pitfall is that the Gini coefficient is not a measure of absolute wealth or income level in a country. For example, Sri Lanka has a lower Gini ratio then USA and hence scores better on the index, however in terms of GDP per capita, median and average income levels, USA is much higher.

5) Another criticism against the Gini Index is that the income which it uses in its calculation is income before taxes and transfer payments. According to the Organization of Economic Co-operation and Development (OECD), taxes and transfers cut the United States’ 2013 Gini Index from 0.509 to 0.401.