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Has the income share of the middle and upper-middle been stable over time, or is its current homogeneity across the world the outcome of a process of convergence? The 'Palma Ratio' revisited

José Gabriel Palma ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: In an article published in Development and Change in 2011, I suggested an alternative measure of inequality to the Gini - a "19th Century statistic" - which has subsequently become known as the ´Palma Ratio'. In this new article, I revisit the argument for such a measure. Using new data, I examine whether the current remarkable homogeneity in the income share of the middle and upper-middle around the world - the foundation of the so-called 'Palma Ratio' - is an historically stable stylised fact, or whether it is a new phenomenon, the outcome of a process of convergence towards the current '50/50 Rule' (a state of affairs in which half of the population in each country located within deciles 5 to 9 tends to appropriate about 50 per cent of the national income). Although partly written in response to a comment on my 2011 paper, this article has evolved to become a further attempt at contributing to the literature on inequality and the statistics to measure it. As in my 2011 paper, in this one I also conclude that if we want to understand why inequality is so unequal across the world we have little choice but to keep reminding ourselves of what I believe to be the most crucial of all distributional stylisedfacts (highlighted by the sub-title of that article): "The share of the rich is what it's all about." The logic of the 'Palma Ratio' is precisely to emphasise this fact - as well as to draw attention to the increasingly artificial (i.e., self-constructed) foundations of growing inequality (as opposed to Piketty, I believe that 'r' is currently so much greater than 'g' as a direct result of human agency, and not as a supposed inevitable outcome of the workings of the invisible hand…). And if one not only wants to understand why inequality is so unequal across the world, but also get closer to understanding why growth is also so diverse, what we should write in our noticeboards is: "It's all about the share of the rich, and what they do with it". This is particularly important to understand if we really want to do something about inequality (and growth), because as someone rightly said long ago, philosophers have only interpreted the world in various ways; the point now is to change it.

Keywords: income distribution; inequality; 'Palma Ratio'; homogeneous middle and upper- middle; convergence; institutional persistence; ideology; neo-liberalism; 'new left'; Latin America; Africa; Brazil; Chile; South Africa; United States. (search for similar items in EconPapers)
JEL-codes: D31 E11 E22 E24 E25 I32 J31 N16 N30 N36 O50 P16 (search for similar items in EconPapers)
Date: 2014-10-15
New Economics Papers: this item is included in nep-gro, nep-lam and nep-mac
Note: jgp5
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