Measuring Inequality and

Poverty
• Size distributions (quintiles, deciles)
- The distribution of income according to size
class of persons without regard to the sources
of that income.

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Typical Size Distribution of Personal Income in a
Developing Country by Income Shares—
Quintiles and Deciles

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 •Lorenz curves
- A graph depicting the variance of the size
distribution of income from perfect equality.

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The Lorenz Curve

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 • Gini coefficients
- An aggregate numerical measure of income
inequality ranging from 0 (perfect equality) to 1
(perfect inequality). It is measured graphically by
dividing the area between the perfect equality
line and the Lorenz curve by the total area lying
to the right of the equality line in a Lorenz
diagram. The higher the value of the coefficient,
the higher the inequality of income distribution;
the lower it is, the more equal the distribution of
income.
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Estimating the Gini
Coefficient

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 • Functional distributions
- The distribution of income to factors of
production without regard to the ownership of the
factors.

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Functional Income Distribution in a
Market Economy: An Illustration

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Measuring Absolute
Poverty
• Headcount Index
- The proportion of a country’s population living
below the poverty line.
• Total poverty gap
- The sum of the difference between the poverty
line and actual income levels of all people living
below that line.

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 TPG  i 1 (Yp  Yi )
H

- Where Yp is the absolute poverty line

- Yi is income of person I

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Measuring the Total Poverty
Gap

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 • Average poverty gaps
- Found by dividing the TPG by the total
population:
TPG
APG 
H
– Where H is number of persons
– TPG is total poverty gap

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 • Foster-Greer-Thorbecke measure
- A class of measures of the level of absolute po
verty.
H

1  (Y
i 1
p  Yi ) 

P 
n Yp

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Poverty, Inequality, and Social
Welfare
• Kuznets’ inverted-U hypothesis
- A graph reflecting the relationship between
a country’s income per capita and its
equality of income distribution.

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The “Inverted-U” Kuznets
Curve

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Selected Income Distribution
Estimate

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Income and Inequality in Selected
Countries

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Change in Inequality in Selected
Countries, with or without Growth

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