The Palma Ratio

Many development experts now use the Palma ratio as a measurement of inequality. The ratio is named after Gabriel Palma who showed that in most countries the 50% of the population corresponding to the middle and upper-middle income groups (deciles 5 to 9 of a country’s income distribution) tend to appropriate as a group about half the national income – approximately 50%. Therefore, the huge disparities across the world in terms of income distribution is almost exclusively a result of what happens to the top 10% and the bottom 40% of the population. In this context, Palma suggests that the ratio of the share of income appropriated by the top 10% to that of the bottom 40% may be a more meaningful and transparent indicator of inequality. In a recent article, The Washington Post explains the usefulness of the Palma ratio.