Palma Ratio
Also known as: Palma index, Palma measure, top10/bottom40 ratio
The Palma ratio measures income inequality as the ratio of the income share held by the richest 10 percent of the population to the share held by the poorest 40 percent. It rests on the empirical regularity, documented by Gabriel Palma, that the middle deciles (5 through 9) capture a remarkably stable half of national income across countries, so that inequality is essentially a contest between the top and the bottom — the 'tails' of the distribution.
Key highlights
- Focuses on the tails, exactly where cross-country and over-time differences in inequality actually occur.
- Highly intuitive — a direct comparison of the top 10 percent against the bottom 40 percent.
- More sensitive to changes at the top and bottom than the Gini, which is dominated by the middle.
- Easy to compute from standard decile-share tables and simple to communicate to policymakers.
Intuition
This section is available to Pro members. Upgrade to Pro
How it works
This section is available to Pro members. Upgrade to Pro
When to use it
Use the Palma ratio when the policy or research focus is on the tails of the income distribution — the gap between the affluent top and the struggling bottom — and when an intuitive, communicable inequality figure is wanted. It is especially apt for distributional and development-policy analysis where the middle is stable and the action is at the extremes, and it has been proposed for monitoring inequality under the Sustainable Development Goals. It is less appropriate when the full distributional shape matters (the Gini or Lorenz curve is more complete), when inequality within the middle is the concern (the Palma ignores it by construction), or when only aggregate data without decile shares are available.
Strengths & limitations
- Focuses on the tails, exactly where cross-country and over-time differences in inequality actually occur.
- Highly intuitive — a direct comparison of the top 10 percent against the bottom 40 percent.
- More sensitive to changes at the top and bottom than the Gini, which is dominated by the middle.
- Easy to compute from standard decile-share tables and simple to communicate to policymakers.
- Ignores by construction all inequality within the stable middle (deciles 5–9).
- Discards distributional information outside the chosen top-10/bottom-40 cut, unlike the full Lorenz curve.
- The constancy of the middle share is an empirical regularity, not a law, and can break down in particular cases.
- Requires reasonably accurate decile shares, which surveys often estimate poorly at the very top.
Common pitfalls
This section is available to Pro members. Upgrade to Pro
Applications
This section is available to Pro members. Upgrade to Pro
Frequently asked
Why focus on the top 10 percent and bottom 40 percent?
Because Palma's empirical work showed that the middle five deciles consistently capture about half of national income across countries, leaving the variation concentrated in the top decile and bottom four deciles. The 10/40 cut therefore isolates the part of the distribution that actually differs across societies, which the Palma ratio measures directly while the stable middle is set aside.
How does the Palma ratio compare with the Gini coefficient?
The Gini summarizes the entire distribution but is mathematically most sensitive to the middle, where little changes across countries, and is harder to interpret intuitively. The Palma ratio deliberately ignores the middle and contrasts the tails, making it more responsive to the top and bottom and easier to communicate. Empirically the two are highly correlated, but the Palma is more transparent about where inequality lies.
What is a typical Palma ratio value?
More equal countries have Palma ratios around 1 or below, meaning the top 10 percent earn about as much as or less than the bottom 40 percent combined; highly unequal countries can have ratios of 3, 5, or more, meaning the top tenth out-earns the bottom four tenths several times over. As with the Gini, comparisons require a consistent income concept and unit of analysis.
Sources
- 1.Cobham, A., & Sumner, A. (2014). Is inequality all about the tails? The Palma measure of income inequality. Significance, 11(1), 10–13.
- 2.Palma, J. G. (2011). Homogeneous middles vs. heterogeneous tails, and the end of the 'inverted-U': it's all about the share of the rich. Development and Change, 42(1), 87–153.
You have read it. What now?
Cite this page
ScholarGate. (2026, June 22). Palma Ratio. ScholarGate. https://scholargate.app/sociology/palma-ratio