What does the Gini coefficient measure?

The Gini coefficient is a statistical measure used to assess the extent of income inequality within a population. It provides a numerical representation of how income is distributed among individuals or households in an economy. The value of the Gini coefficient ranges from 0 to 1, where 0 indicates perfect equality (everyone has the same income) and 1 indicates perfect inequality (one person has all the income while others have none).

This measurement is essential in economics because it helps policymakers and researchers understand the level of income disparity in a society, which can, in turn, influence social policies, taxation, and economic reforms aimed at promoting more equitable income distribution. The Gini coefficient does not measure the growth rate of an economy, average household income, or consumer spending habits, which are important economic indicators but serve different analytical purposes.