Economics: Gini vs. Palma - Two Views of Inequality

Income inequality is not a single number but a multifaceted phenomenon, and the Gini coefficient and Palma ratio capture different parts of it. The Gini summarises dispersion across the entire distribution, so it can stay flat even as the tails pull apart. The Palma ratio, top 10% income share divided by bottom 40% income share, isolates that tug-of-war between the extremes. This distinction matters because policies rarely affect all households equally. Cutting the top marginal tax rate raises post-tax incomes at the top, while a flat-rate VAT consumes a larger share of poorer households' budgets, since they spend more of their income on consumption. A nominal minimum wage freeze erodes real wages as prices rise, and falling union membership weakens collective bargaining, dampening wage pressure for low- and middle-income workers. Together, these forces can widen the Palma ratio while leaving the middle, and therefore the Gini, largely unchanged.