Gini index, poverty and top shares

Consider some ordered income \{y_1,y_2,\dots,y_n\}, with y_1\leq y_2\leq\dots\leq y_n. A classical tool to visualize inequality is Lorenz curve: define the proportion of people F_{i}=i/n (with the convention F_{0}=0); then the cumulated wealth S_{i}=\sum_{j=1}^{i}y_{j} and the fraction of cumulated wealth L_{i}=S_{i}/S_{n} (with again {\displaystyle L_{0}=0}). Then Lorenz curve is simply the plot \{F_i,L_i\} : it plots the proportion of the total income of the population (y axis) that is cumulatively earned by the bottom x\% of the population. And Gini index is the ratio of the area that lies between the line of equality (the first diagonal, (0,0)-(1,1)) and the Lorenz curve over the total area under the line of equality. A simple formula would be {\displaystyle G={\frac {2\sum _{i=1}^{n}iy_{i}}{n\sum _{i=1}^{n}y_{i}}}-{\frac {n+1}{n}}}but let us keep in mind simply the fact that it is simply the area below the first diagonal. Note further that the Lorenz curve is increasing, and convex. So actually, for a given Gini index – say G=60\%, we can have the two following situations below : on the left, 60% of the poor people get absolutely nothing, and the top 40% shares equally the remaining wealth; on the right, one person gets 60% of the wealth, and everyone else shares equally the remaining wealth.

The two areas are equals (the triangles are the same – up to some symmetrys and rotations) so the two Lorenz curve exhibit the same Gini index. On the left, the 10% the poorest own 0% of the wealth (in green) while the 10% of the richest own 25% of the wealth (in red). On the right the 10% the poorest own 4% of the wealth (in green) while the 10% of the richest own 64% of the wealth (in red). Which can be seen as some sort of paradox : the two cases exhibit the same over inequality, but the one where the poorest get more is also the one where the richest get more.

Cite this blog post
Arthur Charpentier (2020, March 1). Gini index, poverty and top shares. Freakonometrics. Retrieved June 16, 2024, from

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