GINI index measures the extent to which the distribution of income (or, in some cases, consumption expenditure) among individuals or households within an economy deviates from a perfectly equal distribution. A Lorenz curve plots the cumulative percentages of total income received against the cumulative number of recipients, starting with the poorest individual or household. The GINI index measures the area between the Lorenz curve and a hypothetical line of absolute equality, expressed as a percentage of the maximum area under the line. Thus a GINI index of 0 represents perfect equality, while an index of 100 implies perfect inequality.
The World Bank’s internationally comparable poverty monitoring database now draws on income or detailed consumption data from more than one thousand household surveys across 138 countries in six regions and 21 other high income countries (industrialized economies). While income distribution data are published for all countries with data available, poverty data are published for low- and middle-income countries and countries eligible to receive loans from the World Bank (such as Chile) and recently graduated countries (such as Estonia) only.
GINI coefficients are not unique. It is possible for two different Lorenz curves to give rise to the same GINI coefficient. Furthermore it is possible for the GINI coefficient of a developing country to rise (due to increasing inequality of income) while the number of people in absolute poverty decreases. This is because the GINI coefficient measures relative, not absolute, wealth. Another limitation of the GINI coefficient is that it is not additive across groups, i.e. the total GINI of a society is not equal to the sum of the GINI’s for its sub-groups. Thus, country-level GINI coefficients cannot be aggregated into regional or global GINI’s, although a GINI coefficient can be computed for the aggregate. Because the underlying household surveys differ in methods and types of welfare measures collected, data are not strictly comparable across countries or even across years within a country.
Two sources of non-comparability should be noted for distributions of income in particular. First, the surveys can differ in many respects, including whether they use income or consumption expenditure as the living standard indicator. The distribution of income is typically more unequal than the distribution of consumption. In addition, the definitions of income used differ more often among surveys. Consumption is usually a much better welfare indicator, particularly in developing countries. Second, households differ in size (number of members) and in the extent of income sharing among members. And individuals differ in age and consumption needs. Differences among countries in these respects may bias comparisons of distribution. World Bank staff have made an effort to ensure that the data are as comparable as possible. Wherever possible, consumption has been used rather than income. Income distribution and GINI indexes for high-income economies are calculated directly from the Luxembourg Income Study database, using an estimation method consistent with that applied for developing countries.