The Inequality We Want: How Much Is Too Much?

Abstract

A key aspect defining the contemporary income distribution is the (increasing) share the top holds compared to the rest. This paper shows that income concentration increases towards the very top of the distribution, while the shares the middle-and upper-middle-income groups hold, remain stable across countries and over time. Traditional indicators less sensitive to changes at the extremes of the distribution might obscure inequality's actual dimension, and thus help perpetuate it. To avoid this, the ratio of the income share of the top 5 per cent over that of the bottom 40 per cent, denominated Palma v.2, could function as a complementary indicator for the measurement of inequality.

A sectoral growth‐income inequality nexus in Indonesia

“…Finally, applying inequality indicators that focus on the bottom 20% of the income distribution allows attention to be focused on an extreme section of income distribution that is overlooked by conventional inequality indicators such as the Gini. As the Gini coefficient accounts for averages in the dispersion of incomes of individuals (Deaton, ), it lacks sensitivity in the extreme sections and may bias the inequality estimation downwards, as Krozer () found in Mexico. Meanwhile, B it measures direct changes to the well‐being of the least‐advantaged in income distribution; i.e.…”

Türkiye İçin Palma Oranının Ulusal ve Bölgesel Düzeyde Analizi

“…Consequently, V20 (first 5% income share) values are double those of V19 (19 th ventile, second 5% income share) values. Furthermore, this figure has a 3 times higher standard deviation than V19, that leads us to recall the importance of the Palma ratio V.2 to analyze the degree of concentration of the inequalities as mentioned in Krozer's (2015).…”

“…Furthermore, the Palma ratio has triggered a question of measurement of inequality metrics as a political tool in order to decrease inequality. Krozer (2015) raises an additional ratio based on the findings of the Palma ratio, suggesting that this may be complementary to the Palma ratio. Accordingly, when the ratio of the first 5% to bottom 40% (Palma V.2) and the ratio of the first 1% to bottom 40% (Palma V.1) is calculated, the dimensions of the divergence within the first 10% become apparent.…”

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“…For instance, Cobham & Sumner () recommend a cross‐country index using the ratio of the top 10 per cent's share to the bottom 40 in a measure they call the Palma, after the economist Gabriel Palma. For the reasons above regarding the concentration among the top 5 per cent, Krozer () suggests using a top 5, bottom 40 ratio she calls the Palma v.2.…”

“…Moreover, if we dissect the richest 10 per cent we see that the real story is not so much what is happening between the 90th to 95th percentiles, but what is happening above the 95th percentile (the richest 5 per cent) (Krozer, ). This is because across countries the top 10 per cent is the most unequal segment in the distribution.…”