Working Paper: CEPR ID: DP8071
Authors: Facundo Alvaredo
Abstract: When a very top group of the income distribution, infinitesimal in numbers, owns a finite share S of total income, the Gini coefficient G can be approximated by G*(1 - S) + S, where G* is the Gini coefficient for the rest of the population. We provide a simple formal proof for this expression, give a general formula of the relationship when the top group is not infinitesimal, and offer two applications as illustrations.
Keywords: Gini Coefficient; Pareto Distribution; Top Income Shares
JEL Codes: D31; H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income share of the very top group (s) (D33) | Gini coefficient (g) (D31) |
| Gini coefficient for the rest of the population (g_r) (D31) | Gini coefficient (g) (D31) |
| income share of the very top group (s) and Gini coefficient for the rest of the population (g_r) (D31) | Gini coefficient (g) (D31) |