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By:Ija Trapeznikova
Published on 2019 by

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Economists use various metrics for measuring income inequality. Here, the most commonly used measures-the Lorenz curve, the Gini coefficient, decile ratios, the Palma ratio, and the Theil index-are discussed in relation to their benefits and limitations. Equally important is the choice of what to measure: pre-tax and after-tax income, consumption, and wealth are useful indicators; and different sources of income such as wages, capital gains, taxes, and benefits can be examined. Understanding the dimensions of economic inequality is a key first step toward choosing the right policies to address it.

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