Practical modified Gini index

Abstract

The Gini index is the most common method for estimating the level of income inequality in countries. In this article, we suggest a simple modification that takes into account the moderating effect of in-kind government benefits. Unlike other studies that use micro-level data that are rarely available for many countries or over a period of time, the proposed Modified Gini (MGINI) index could be calculated using just the regularly available data for each country. Such data include the original Gini coefficient, government consumption expenditures, Gross Domestic Product (GDP) and total tax revenue as a percentage of GDP. This modified version of the Gini index allows us to calculate the level of inequality more precisely and make better comparisons between countries and over time.

Keywords:

• inequality
• Gini index
• in-kind benefits
• government consumption

JEL Classification:

• H1
• I3