International Journal of Economics and Finance; Vol. 10, No. 3; 2018 ISSN 1916-971X E-ISSN 1916-9728 Published by Canadian Center of Science and Education 205 The Gini Coefficient: An Application to Greece Augustine C. Arize 1 , Paraskevas Bakarezos 2 , Ioannis N. Kallianiotis 3 , John Malindretos 4 & John Phelan 5 1 Department of Economics and Finance, College of Business, Texas A&M University, USA 2 Agricultural Bank of Greece, Republic of Greece 3 Department of Economics and Finance, Arthur Kania School of Management, University of Scranton, USA 4 Department of Economics, Finance and Global Business, Cotsakos College of Business, William Paterson University, Wayne, New Jersey, USA 5 Department of Economics, College of Business, University of New Haven, USA Correspondence: John Malindretos, Department of Economics, Finance and Global Business, Cotsakos College of Business, William Paterson University, Wayne, New Jersey, USA. E-mail: MALINDRETOSJ@wpunj.edu Received: August 15, 2017 Accepted: December 9, 2017 Online Published: February 28, 2018 doi:10.5539/ijef.v10n3p205 URL: https://doi.org/10.5539/ijef.v10n3p205 Abstract The Gini coefficient is a measure of income inequality. In this study we show that it needs to be adjusted to be a correct measure of income inequality. The result is that decomposition is possible even without the interaction effect. The requirement however, is that there are data on individual incomes. Secondly, the approach is applied to Greece. Third, there is the last section indicating extensions. Keywords: Decomposition, Gini coefficient, overlapping component of Gini coefficient, Greece 1. Introduction The measurement of personal income inequality has been for long a matter of interest in economics. There exist several measures of inequality and Stark (1972) gives a comprehensive list. The most widely used measure of inequality is probably the Gini coefficient. The investigation of its various characteristics on both the theoretical and the empirical level has also been long with major contributions by Atkinson (1970) and Sen (1973). An interesting development occurred when Bhattacharya and Mahalanobis (1967) and later Rao (1969) introduced the decomposition approach. According to it the population of income-receiving units is divided into two groups and consequently inequality is distributed to disparities in income between groups. Pyatt (1976) analyzed the same disaggregation in matrix form and his method corresponds directly to that used here. The purpose of this paper is to present the process of decomposition and its relation to the Gini coefficient with emphasis on the explanation of the nature of the overlapping component (or interaction effect) which arises during decomposition and it is usually treated as an awkward by-product of this process. It is shown that exact decomposition without the presence of the overlapping effect is possible even when group income distributions are overlapping under condition that data on individual incomes are available. The problem is purely mathematical and it arises when decomposition is accompanied by replacement individual income comparisons with differences in mean group income between pairs of groups. In this case, the overlapping component can be completely separated from the other two, the “within” and “between” inequality components. Furthermore, the case of grouped data is considered that does not allow exact separation of the component. Exact decomposition without the presence of the overlapping effect, in the case of exact data, is the subject matter of the first section. The next section deals with the same case of exact data, the condition under which the overlapping component arises and its mathematical isolation and estimation. The third section considers the more realistic case of non-availability of exact data that makes exact separation of the overlapping component impossible and a combination of estimating techniques is suggested to approximate it. The forth section consists of an illustration of all these results that are applied to data on income in Greece 1962-88. The application is methodologically similar is not to analyze the components and the trend of inequality. The fifth section outlines briefly the necessary extensions of this analysis. The sixth section is a short summary with a presentation of the conclusions of the paper. In conclusion, this paper was developed and written in the hope of contributing to further understanding of the