Where Do We Draw the Line? Suggesting a Threshold for Extreme Inequality

Abstract

Despite increasing consensus that high inequality levels are harmful, what is conspicuously missing from the debate over effective measures to decrease income disparities is the formulation of concrete targets to meet. This paper
therefore proposes the creation of an extreme inequality line as a maximum threshold. Such a general limit would help policy-makers measure progress towards more equality and increase accountability of their actions. At the
same time, it would signal to the general public that, rather than being a necessary evil, inequality is a moldable and ultimately reducible phenomenon. After explaining the conceptual need for an upper inequality limit, the
paper proceeds to discuss its concrete level. As a measuring indicator, it proposes the ratio of the income share of the top 5 per cent over that of the bottom 40 per cent, denominated Palma v.2, for its simplicity and intuitiveness.