I have data on disposable income, where some households have negative income. Albeit I can immediately compute the Gini with these dataset (e.g. with ineqdec0
, inequal7
or fastgini
in Stata), it is well known that Gini with some negative values could be higher than 1. An example from such reference:
Is there an "optimal" method to deal with such observations?
I can think of some approaches like:
- truncating: eliminating all observations with negative income
- censoring: assign zero income to all negative income
- translation: add to every observation the largest negative income, so that the poorest observation has zero income
- some type of normalisation, like the one the reference above gives:
In all these cases, the Gini will now be between 0 and 1. Is there a "preferred" or an "usual" method? (perhaps by multilateral organisations like IMF, OECD, etc)
As a secondary question, is there an inequality index that is better poised to deal with negative income?