Measurement of Income Inequality: A Survey

Muhammad Idrees and Eatzaz Ahmad

Abstract

This paper reviews various inequality measures and finds that only few measures possess desirable properties of an inequality measure. Gini coefficient and the coefficient of variation are decomposable both in additive and non-additive forms and possess all the properties, except the stringent Pigou-Dalton condition given by Diminishing Transfers Axiom. Kakwani index and four popular generalized Gini indices posses all the properties but they are not decomposable additively or non-additively. Since sensitivity of an inequality measure to the location of income transfers also varies across various measures, hardly any measure can serve all the purposes and it is desirable to employ more than one measure in an empirical analysis of income inequality.