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Measuring Inequality of Households’ Income in Selected Balkan Countries: The Palma Inequality Measure Vs the Gini Coefficient (CROSBI ID 633272)

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Dumičić, Ksenija ; Akalović Antić, Josipa Measuring Inequality of Households’ Income in Selected Balkan Countries: The Palma Inequality Measure Vs the Gini Coefficient // Development, Competitiveness and Inequality in EU and Western Balkans - Book of Abstracts. / Radović Marković, Mirjana ; Ilieva, Snezhana ; Vunjak, Nenad (ur.). (ur.). Beograd: Institute of Economic Sciences Belgrade, 2015. str. 43-45

Podaci o odgovornosti

Dumičić, Ksenija ; Akalović Antić, Josipa

engleski

Measuring Inequality of Households’ Income in Selected Balkan Countries: The Palma Inequality Measure Vs the Gini Coefficient

The aim of the research is to study the dynamics of income concentration using the Palma ratio in selected Balkan countries. In this paper the Palma ratio, the inequality measure introduced by Chilean economist Gabriel Palma in 2013, is calculated for the national income of households in Bulgaria, Croatia, Hungary, Republic of Macedonia, Romania, Serbia, Slovenia and Turkey for three distant years, 2002, 2008 and 2011. Generally speaking, the Palma, defined as the ratio of national income share of the top 10% of households to the bottom 40%, shows that the “middle” 50% of the population, defined as households in the 5th to the 9th deciles, has a stable share of national income (around 50%), and, according to G. Palma, inequality is a question of the tails. G. Palma represented these results in his paper “Globalizinginequality: ‘Centrifugal’and ‘centripetal’ forces at work” in 2006 and in the paper “Homogeneous middles vs. heterogeneous tails, and the end of the “inverted-U” in 2011. Alex Cobham and Andy Sumner in 2013 compared the Palma ratio and the Gini coefficient, for the first time. In their papers, “Is it all about the tails? The Palma measure of income inequality“, and „Putting the Gini back in the bottle? The Palma as a policy-relevant measure of inequality“, they explored a Palma and made further conclusions. First, they confirmed the robustness of Palma’s main results: stability of “middle” 50% share of income across countries. Then, they compared the Palma and the Gini coefficient and found a close fit. Further, they suggested the Palma would complement, or perhaps even replace the Gini suggested the Palma would complement, or perhaps even replace the Gini coefficient, as it is intuitively easier to understand and for a given high Palma value, it is clear what needs to do to reduce poverty. In this paper, we used decile data on income distribution from the World Bank’s Povcal dataset (downloaded September 2015). Data for the nearest dates to 2002, 2008 and 2011 are used for each of eight countries that are considered. In addition, we used World Bank World Development Indicators dataset that includes information on Gini coefficient. The data for 2002, 2008 and 2011 are analysed for eight, mostly Balkan, countries. Data from year 2012 to 2014 are not available for selected countries. We calculated Palma ratio and compared it to the Gini coefficient. Then, we made correlation analysis between values of the Palma ratio and the Gini coefficient. The lowest Palma in 2002 was in Hungary (0.95), in 2008 in Slovenia (0.83), and the same was in 2011, when it was 0.85. In 2002 the highest value for the Palma was in Turkey (2.00), and in 2008 it was again so (1.83), but in 2008 the highest value was in the Rep. of Macedonia (2.34), meaning that the upper 10% of households have 2.34 times (or 134%) more income than the lower 40%. In the period from 2002 to 2011, Bulgaria, Rep. of Macedonia, Croatia and Hungary show an increase, and Serbia, Turkey, Romania and Slovenia show a decrease of the Palma measure of inequality, meaning a decrease of income concentration over households. It is worth mentioning that in the same years highly developed, such as Scandinavian, countries have the Palma measure mostly below 1.00. The Palma is compared to the Gini coefficient. On Gini scale the rank of countries are the same but when you compare countries, or the same country over time, the Palma ratio is telling us more about inequality than the Gini coefficient. For example, the middle 50% of the population have about half of national income in both Rep. of Macedonia and Serbia ; but the top10% in Rep. of Macedonia have more than 50% more the share of national income as in Serbia, and the bottom 40% have correspondingly less. Both, the Palma and the Gini coefficient are greater in Rep. of Macedonia, but in Rep. of Macedonia the Palma value was 2.34 and in Serbia 1.00 and the Gini value in Rep. of Macedonia was 44.2, and in Serbia 28.18. Further, the Palma ratio in Rep. of Macedonia in 2002. was 1.75, meaning that the upper 10% of households have 1.75 times (or 75%) more income than the lower 40% and in 2008. The Palma ratio was 2.34 meaning that the upper 10% of households have 2.34 times (or 134%) more income than the lower 40%. For the same years, the Gini coefficient increased from 38.75 to 44.2. Further, the Palma ratio in Croatia in 2002 was 1.17, and in 2008 it was 1.36, meaning that the upper 10% of households increased their capture for 50% from 2002 to 2008 (in 2002 they had 17% more income than the lowest 40%, and in 2008 they have 36% more income than the lower 40%). For the same years, the Gini coefficient increased from 31.1 to 33.6 and it implies moderate inequality. Correlation analysis shown that between the Palma ratio and the Gini coefficient for eight selected countries there exist quite strong positive linear correlation. Coefficient of correlation in 2002 was 0.9955 and in 2008, it was 0.9848. In most occasions, both the Gini and the Palma measure summarize the same information about the income distribution, but the Palma is more intuitive and it is easier to adopt and use by policymakers and citizens. Further, because of stability of the “middle” 50 percent share of income across studied countries, in the future, if differences among “the richest” (the top 10%) and “the poorest”(the bottom 40%) would increase, the Palma would show it better than the Gini coefficient. Based on this particular research, the authors recommend complementing the Gini with the Palma inequality measure.

households’ income ; measures of inequality ; the Palma inequality measure ; the Gini coefficient

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Podaci o prilogu

43-45.

2015.

objavljeno

Podaci o matičnoj publikaciji

Development, Competitiveness and Inequality in EU and Western Balkans - Book of Abstracts.

Radović Marković, Mirjana ; Ilieva, Snezhana ; Vunjak, Nenad (ur.).

Beograd: Institute of Economic Sciences Belgrade

978-86-89465-19-8

Podaci o skupu

International scientific conference: Development, Competitiveness and Inequality in EU and Western Balkans

predavanje

26.11.2015-26.11.2015

Beograd, Srbija

Povezanost rada

Ekonomija