Question

What are the key criticisms of the Gini coefficient?

Answer 1

Key criticisms of the Gini coefficient are:

The Gini coefficient measured for a large economically diverse country will generally result in a much higher coefficient than each of its regions has individually. For this reason the scores calculated for individual countries
within the EU are difficult to compare with the score of the entire US.

Comparing income distributions among countries may be difficult because benefits systems may differ. For example, some countries give benefits in the form of money while others give food stamps, which may not be counted as income in the Lorenz curve and therefore not taken into account in the Gini coefficient.

The measure will give different results when applied to individuals instead of households. When different populations are not measured with consistent
definitions, comparison is not meaningful.

As for all statistics, there will be systematic and random errors in the data. The meaning of the Gini coefficient decreases as the data become less accurate. Also, countries may collect data differently, making it difficult to compare statistics between countries.

Economies with similar incomes and Gini coefficients can still have very different income distributions. This is because the Lorenz curves can have different shapes and yet still yield the same Gini coefficient. As an extreme example, an economy where half the households have no income, and the other half share income equally has a Gini coefficient of ½; but an economy with complete income equality, except for one wealthy household that has half
the total income, also has a Gini coefficient of ½.