Jun 13, 2014 - 0 Comments - Data -

Gini Coefficient and Income Distribution

Earlier, in studying the aspects of income distribution, we have looked at income distribution across deciles and the difference between average and median household income. But one of the most frequently referred to incidators of income distribution is the Gini coefficient.

In explaining the Gini coefficient, we must first refer to the Lorenz Curve that is used to calculate the coefficient. In graphing the Lorenz curve, the horizontal axis refers to the income groups and the vertical axis refers to their share of income. To put it differently, Lorenz curve is graph that shows the share of income received by each income percentile. Lorenz curve is a convenient indicator because it enables us to refer to a single value (rather than indicating how much income each percentile receives separately) regarding the relative level of income inequality in each country.  Calculating the area between the Lorenz curve and the 45 degree Line of Equality, a value between 0 and 1, the Gini coefficient is found.  If for a country the Gini coefficient gets smaller and approaches to 0, income inequality in that country reduces; if it gets greater and approaches to 1, income inequality increases.

In Table 1, we observe that after 2009, Turkey’s Gini coefficient got slightly smaller (from .415 to .402). This means that income inequality in Turkey has reduced. Given that the Gini coefficient was .428 in 2006, we can speak of a certain modicum of improvement in income distribution in the last 6 years. Notice that we have identified a similar trend in our previous entry on Income Distribution in Turkey. This is not a  coincidence given the fact that Gini coefficient is a summary statistic calculated using  the same data.

Even though there is some improvement in the distribution of income in Turkey, when compared to, for instance, Spain, England and France, Turkey does not fare well. Notice that inequality in Turkey is greater not only compared to England and France but also to Spain where the economic crisis had a significant deteriorating impact on income inequality.

Table 1

In Table 2, we compared the Gini coefficient calculated by Turkstat with that of all available countries from the OECD database. If available, we took the 2010 values; if not, we chose (as indicated) the most recent value available. Within this set of countries, Turkey is pretty high on the list. For instance, USA, the home of the Occupy movement, is just below Turkey. Chile, Mexico and Russia are above Turkey. In contrast, Scandinavian countries, especially Denmark and Norway seems to have solved the problem of income inequaity. Among the countries listed in this OECD data set, Iceland is most equal country  with .244 Gini coefficient.

Table 2

Sources:

Data on Turkey is downloaded from the website of Turkish Statistical Institute,” Income Distribution and Living Conditions Statistics” link.

Statistical Table: “Gini Coefficient by Equivalised Household Disposable Income (Turkey, Urban, Rural, SR, Level 1)”

Comparative dataset is downloaded from the OECD website, “Income Distribution and Poverty” link.

Measure: “Gini (at disposable income, post taxes and transfers)”

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