Revisiting the Gini Index
In this essay written in Singapore Angle, I examine how the Gini co-efficient from the Department of Statistics in Singapore need to be revised due to transfer payments.
In an earlier article, we discussed the Gini index in detail and suggested an alternative to measure inequality with data pertaining to consumption rather than income. We queried earlier whether the Gini coefficient computed by the Department of Statistics (SingStat), Ministry of Trade and Industry has taken taxation and transfer money payments (for example, the Progress package in 2006) into account.
“Truth is stranger than fiction, but it is because Fiction is obliged to stick to possibilities; Truth isn’t.”
– Mark Twain
An occasional paper on income statistics entitled “Key Household Income Trends” is released today from SingStat. Two interesting issues are discussed in this paper: (i) the impact of the recent Progress package to the lower income households and (ii) the calculation of Gini coefficient with the income data adjusted with government benefits and taxes. Matching our earlier argument (see Reynolds “Income and Wealth”), the Gini coefficient has dropped from 0.472 to 0.439 (adjusted with government taxes and benefits included) in the year 2006 (as compared to 0.468 in 2005). According to them, the drop is attributed largely to the Progress Package that was weighted in favor of the lower income group. Does that mean the inequality between the different income groups has decreased? Since they did not recompute the earlier figures with the modification of taxes and pre-transfer payments from 2000 to 2005, the question remains unanswered.
With this new revelation on the Gini index, can we contest the earlier claim from the Citigroup report on the emergence of a dual track economy in Singapore? The answer is no. To address that question, we have to dig deeper in the General Household Survey 2005 data and examine the assumptions and inferences leading to that conclusion.
Acknowledgments: The author thanks Speranza Nuova for bringing the SingStat paper to his attention.