Monday, February 09, 2015

Income Inequality In OECD Countries

I recently took another look at data, available from the Organization for Economic Co-operation and Development (OECD), on income inequality. The Gini coefficient is available on countries in the database, under measures of Social Protection and Well-being. Under that menu, expand the sub menu for Income distribution and poverty, and select inequality. You can see the Gini coefficient (at disposable income, post taxes and transfers) displayed, by country, for various years. Table 1 shows the most recent numbers, sorted from countries with the most equal distribution to the least equal. For one way of thinking about it, the United States is not number 1, since the US is exceeded by Turkey, Mexico, and Chile.

Table 1: Gini Coefficient
CountryGini Coefficient
(Non Provisional)
Year
Slovenia0.2452011
Norway0.2502011
Iceland0.2512011
Denmark0.2532011
Czech Republic0.2562011
Finland0.2612012
Slovak Republic0.2612011
Belgium0.2642010
Sweden0.2732011
Luxembourg0.2762011
Netherlands0.2782012
Austria0.2822011
Switzerland0.2892011
Hungary0.2902012
Germany0.2932011
Poland0.3042011
Korea0.3072012
France0.3092011
Ireland0.3122009
Canada0.3162011
Italy0.3212011
Estonia0.3232011
New Zealand0.3232011
Australia0.3242012
Greece0.3352011
Japan0.3362009
United Kingdom0.3412010
Portugal0.3412011
Spain0.3442011
Israel0.3772011
United States0.3892012
Turkey0.4122011
Mexico0.4822012
Chile0.5032011

The Gini coefficient is a measure of inequality, with a higher Gini coefficient denoting a more unequal distribution of income. It is defined as follows: sort the population in order of increasing income. Plot the percentage of income received by those poorer than each value of income against the percentage of the population with less than that value of income. This is the Lorenz curve, and it will fall below a line with a slope of 45 degrees going through the origin. The Gini coefficient is the ratio of the area between the 45 degree line and the Lorenz curve to the area under the 45 degree line. A Gini coefficient of zero indicates perfect equality, while a Gini coefficient of unity arises when one person receives all income and everybody else gets nothing. Consequently, the Gini coefficient lies between zero and one.

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