IDEAS home Printed from https://ideas.repec.org/p/ais/wpaper/1506.html
   My bibliography  Save this paper

Beyond the Gini index: Measuring inequality with the Balance of Inequality index

Author

Listed:
  • Giorgio Di Maio

    () (Politecnico di Milano)

  • Paolo Landoni

    () (Politecnico di Milano)

Abstract

In the first part of this paper, we present the Balance of Inequality (BOI) index, a new approach to the measurement of inequality in which each individual is given a weight equal to her income, and the barycenter of the income distribution is used to measure its inequality. The BOI index features an intuitive physical interpretation and a simple graphical representation that shows the income distribution and the inequality measure together. The index’s lower and upper bounds are always 0 and 1, which indicates that it is an accurate measure of inequality even when applied to small populations and small samples – cases in which the Gini index is downward biased. We also show that the BOI index is related to the Gini index. In the second part of the paper, we decompose inequality by population subgroups for both the BOI, and Gini indices with a new approach that considers the distribution of the individual members of each subgroup in the population. This decomposition is accomplished by introducing the barycenter of the subgroups for cases of perfect equality and perfect inequality, the asymmetry effect and the irregularity effect. After demonstrating that the BOI index is decomposable by population subgroups, we show that i) the lower and upper bounds of the BOI index and of the Gini index are computable when grouped data or mean incomes are available but the inequalities within subgroups are unknown (without any assumptions regarding the distribution function), ii) the BOI index and the Gini index can be computed with frequency distributions, and iii) the average within-subgroup inequality implied in the Gini indices of the population inequality given with grouped data can be computed. We also show that the Lambert-Aronson (1993) residual i) can be non-null when the subsets do not overlap and ii) is not the effect of the overlapping between subgroups but of the approach used. Finally, we outline the BOI index decomposition by income sources and propose a new formulation of the population principle.

Suggested Citation

  • Giorgio Di Maio & Paolo Landoni, 2015. "Beyond the Gini index: Measuring inequality with the Balance of Inequality index," a/ Working Papers Series 1506, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
  • Handle: RePEc:ais:wpaper:1506
    as

    Download full text from publisher

    File URL: http://www.asimmetrie.org/wp-content/uploads/2015/09/AISWP201506.pdf
    File Function: Third version, 2015
    Download Restriction: no

    References listed on IDEAS

    as
    1. Ebert, Udo, 1988. "A Family of Aggregative Compromise Inequality Measures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(2), pages 363-376, May.
    2. Lambert, Peter J & Aronson, J Richard, 1993. "Inequality Decomposition Analysis and the Gini Coefficient Revisited," Economic Journal, Royal Economic Society, vol. 103(420), pages 1221-1227, September.
    3. Corrado Gini, 2005. "On the measurement of concentration and variability of characters," Metron - International Journal of Statistics, Dipartimento di Statistica, Probabilità e Statistiche Applicate - University of Rome, vol. 0(1), pages 1-38.
    4. Shalit, Haim, 1985. "Calculating the Gini Index of Inequality for Individual Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 47(2), pages 185-189, May.
    5. George Deltas, 2003. "The Small-Sample Bias of the Gini Coefficient: Results and Implications for Empirical Research," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 226-234, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Inequality measurement; Gini index; Inequality decomposition by population subgroups; Inequality decomposition by income sources; Balance of Inequality; BOI index; Asymmetry Effect; Irregularity Effect; R concentration ratio.;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ais:wpaper:1506. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alberto Bagnai). General contact details of provider: http://edirc.repec.org/data/asimmea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.