A palace economy is a system of economic organisation in which wealth flows out from a central source (the 'palace'), eventually reaching the common people, who have no other source of income. The division of labour in such an economy leads to a leisured elite, a class of bureaucrats, and a class of subsistence farmers. This system can be seen as a combination of a command economy and a subsistence economy.

Examples were the ancient Mycenaean, Cretan and Minoan societies.