PalmaVerhältnis

PalmaVerhältnis, commonly called the Palma ratio, is a statistical measure used to assess income inequality within an economy. It is defined as the ratio of the income share of the top 10% of earners to the income share of the bottom 40%. In other words, PalmaVerhältnis = (top 10% income share) / (bottom 40% income share).

Origin and rationale: It was introduced by Chilean economist Gabriel Palma in 2011 as an alternative to the Gini coefficient and other dispersion metrics. Palma argued that post-1980 inequality trends in many countries were driven mainly by changes at the extremes (top and bottom) rather than middle-class shifts, making the top/bottom ratio a more stable and interpretable indicator.

Calculation and data: Calculations rely on nationally representative income or consumption data, typically using tax records or survey data to estimate shares for the top decile and bottom forty percent. The measure is often reported for countries or regions and tracked over time to gauge policy impact.

Interpretation and use: A higher PalmaVerhältnis indicates greater inequality between the top and bottom groups, while a lower value suggests a more equal distribution. It has been adopted by some researchers and international organizations as a simple, intuitive complement to the Gini coefficient.

Limitations: The Palma ratio does not reveal the distribution within the middle 40%, can be sensitive to income definition (gross vs. net income, equivalized consumption), and may be affected by data quality and methodological choices. It should be used alongside other measures for a full picture of inequality.