A simple method for measuring inequality

Thitithep Sitthiyot,Kanyarat Holasut

doi:10.1057/s41599-020-0484-6

Thitithep Sitthiyot, Kanyarat Holasut

Open Access

https://doi.org/10.1057/s41599-020-0484-6

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Abstract

To simultaneously overcome the limitation of the Gini index in that it is less sensitive to inequality at the tails of income distribution and the limitation of the inter-decile ratios that ignore inequality in the middle of income distribution, an inequality index is introduced. It comprises three indicators, namely, the Gini index, the income share held by the top 10%, and the income share held by the bottom 10%. The data from the World Bank database and the Organization for Economic Co-operation and Development Income Distribution Database between 2005 and 2015 are used to demonstrate how the inequality index works. The results show that it can distinguish income inequality among countries that share the same Gini index but have different income gaps between the top 10% and the bottom 10%. It could also distinguish income inequality among countries that have the same ratio of income share held by the top 10% to income share held by the bottom 10% but differ in the values of the Gini index. In addition, the inequality index could capture the dynamics where the Gini index of a country is stable over time but the ratio of income share of the top 10% to income share of the bottom 10% is increasing. Furthermore, the inequality index could be applied to other scientific disciplines as a measure of statistical heterogeneity and for size distributions of any non-negative quantities.

Highlights

The Gini index was devised by an Italian statistician named Corrado Gini in 1912
We are well aware that the accuracy of the data on the Gini index and the income shares depends on the population survey methods and/or the probability laws governing the distribution of income as discussed in Eliazar and Sokolov (2012), Chakrabarti et al (2013), and Sarabia et al (2019). While research on these issues is continuing, we hope that our simple method for measuring inequality would be useful for socioeconomics and for other disciplines of science as a measure of statistical heterogeneity and for general size distributions, providing ones have the data on the Gini index and the income share of the top 10% and that of the bottom 10% or the respective share's ratio of any non-negative quantities
World Bank and the OECD IDD between 2005 and 2015 are employed in order to calculate α for the entire period, and, more importantly, to show that our inequality index could capture the case where countries whose the Gini index is stabilizing or falling across time but the ratio of the income share of the top 10% to that of the bottom 10% is increasing

Summary

Introduction

The Gini index was devised by an Italian statistician named Corrado Gini in 1912. By far, it has arguably been the most popular measure of socioeconomic inequality, especially in income and wealth distribution, given that there are well over 50 inequality indices as reported in Coulter (1989) (see Eliazar, 2018; McGregor et al, 2019 for recent updates on the inequality measures). The data used to calculate these inter-decile ratios or the ratios themselves including the Palma index are regularly updated and reported along with the Gini index by international organizations, such as the World Bank, the OECD, and the Human Development Report Office as the measures of income inequality.

Results

Conclusion