To Gini Or Not To Gini

Funny how the subject keeps popping up. First the IMF, then this lovely history lesson from Prof Frances Wooley (excerpt):

Why the Gini?

Stephen Gordon recently posted an excellent analysis of trends in income inequality in Canada and elsewhere. Stephen, like almost all of the other authors cited in his post and the subsequent discussion, measured inequality using the Gini coefficient.

The very next day, I saw a paper by Francesca Greselin arguing that the Gini is inferior to the new Zenga inequality index and should be replaced.

Talk about deja vu all over again. Various limitations of the Gini inequality index have been known for years. Tony Atkinson described some and proposed an alternative to back in 1970; other indices for measuring inequality are the Theil index, and the Hoover index. Greselin and co-authors set out new arguments, and make a convincing case for replacing the Gini. But I don't expect to see the Zenga index in wide use any time soon.

We keep on using the Gini because that's the way people have always done it. But why did people even start using the Gini in the first place?...

The IMF Talks Inequality

The September 2011 issue of the IMF’s Finance and Development magazine takes a look at global income inequality (from the Editorial; link to the table of contents at the end of this post):

Haves and Have Less

WE used to think that overall economic growth would pull everyone up. While the rich might be getting richer, everyone would benefit and would see higher living standards. That was the unspoken bargain of the market system.

But now research is showing that, in many countries, inequality is on the rise and the gap between the rich and the poor is widening, particularly over the past quarter-century.

With taxpayers forced to pay for troubles in the financial industry in advanced economies during the global economic crisis, this discrepancy seems particularly galling to wage-earners who have seen their pay stagnate or worse. Inequality has started to attract more research by economists.

This issue of Finance & Development looks at income inequality around the world and how it matters.