Short-term Gini coefficient estimation using nonlinear autoregressive multilayer perceptron model

Abstract

Poverty, an intricate global challenge influenced by economic, political, and social elements, is characterized by a deficiency in crucial resources, necessitating collective efforts towards its mitigation as embodied in the United Nations' Sustainable Development Goals. The Gini coefficient is a statistical instrument used by nations to measure income inequality, economic status, and social disparity, as escalated income inequality often parallels high poverty rates. Despite its standard annual computation, impeded by logistical hurdles and the gradual transformation of income inequality, we suggest that short-term forecasting of the Gini coefficient could offer instantaneous comprehension of shifts in income inequality during swift transitions, such as variances due to seasonal employment patterns in the expanding gig economy. System Identification (SI), a methodology utilized in domains like engineering and mathematical modeling to construct or refine dynamic system models from captured data, relies significantly on the Nonlinear Auto-Regressive (NAR) model due to its reliability and capability of integrating nonlinear functions, complemented by contemporary machine learning strategies and computational algorithms to approximate complex system dynamics to address these limitations. In this study, we introduce a NAR Multi-Layer Perceptron (MLP) approach for brief term estimation of the Gini coefficient. Several parameters were tested to discover the optimal model for Malaysia's Gini coefficient within 1987–2015, namely the output lag space, hidden units, and initial random seeds. The One-Step-Ahead (OSA), residual correlation, and residual histograms were used to test the validity of the model. The results demonstrate the model's efficacy over a 28-year period with superior model fit (MSE: 1.14 × 10 ⁻⁷) and uncorrelated residuals, thereby substantiating the model's validity and usefulness for predicting short-term variations in much smaller time steps compared to traditional manual approaches.