Palma ratio
Topic: Poverty and Inequality: Measurement and Policy · NCERT: Beyond NCERT
Meaning
The Palma ratio (José Gabriel Palma, 2011) measures inequality by looking only at the two ends of the distribution.
Palma ratio = income share of the top 10% ÷ income share of the bottom 40%
It rests on a pattern found almost everywhere: the middle groups (deciles 5 to 9) hold about half of all income. So differences in inequality between countries come mostly from the richest and the poorest. A higher ratio means more inequality. The ratio is easy to explain and highly sensitive to what happens at the extremes.
Example
Suppose the richest 10% of a country receive 30% of total income and the poorest 40% receive 15%. The Palma ratio is 30 ÷ 15 = 2. The rich tenth earns twice as much in total as the bottom four-tenths.
Don't confuse with
- 20:20 ratio: this divides the income of the top 20% by the income of the bottom 20%. It uses different slices of the population.