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Gini Coefficient

A statistical measure of the level of income inequality in an economy calculated by analysing the size of any inflexion in the Lorenz Curve.

Below is a diagram to illustrate how to calculate the coefficient.The Gini Coefficient is a measure of statistical dispersion intended to represent the income distribution of a nation's residents. The Gini Coefficient is computed by dividing the area between the 45o line and the lorenz curve by the area under the 45o line. This index has a measure between 0 and 1. The closer the Gini Coefficient is to 1 the more unequal the distribution of income for a country is.

For instance if the Gini Coefficient rises this means that the index is moving closer to 1 and as a result the income distribution for a country is worsening, increasing the level of income inequality. Graphically this would be represented by an outwards shift of the Lorenz Curve as the richer part of the population hold the highest proprtion of national income. This is traditionally what has happened in the UK economy when we expereicned the recent double-dip recession that widened the gap between the highest and lowest earners.

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