Palma Ratio

The Palma ratio is a measure of income inequality, developed by the Chilean economist Gabriel Palma, defined as the share of gross national income received by the richest ten percent of a population divided by the share received by the poorest forty percent. Palma's own research found that the income share held by the middle of the income distribution tends to stay relatively stable across countries at around half of national income, so most of the cross country variation in inequality comes from how the other half is split between the top decile and the bottom two fifths, which is what the ratio is built to isolate. It is used as an alternative to the Gini coefficient, on the argument that the Gini coefficient is comparatively insensitive to changes at the very top and bottom of the income distribution, where much of the real variation in inequality actually occurs.