ABSTRACT
In the last chapter, we considered international differences in income distribution. We also considered ways in which such cross-section data have been used to identify factors which may have influenced income distribution. However, such cross-section analysis is subject to some serious weaknesses and is not very reliable, especially for projecting future trends in income distribution. Such analysis is useful only when it can be assumed that all countries are traversing the same dynamic path, and that individual countries are at different points on this path. If this assumption is valid, then international cross-section data can be used to identify the nature of this path and to estimate its parameters. But the underlying assumption that all countries are following the same path is a very doubtful one. The actual path followed by countries may be influenced by a wide variety of other factors based on their historical evolution and their economic institutions. Therefore we must also consider historical evidence about changes in income distribution of individual countries over time. Further, as the distribution of income changes only slowly over time, we must consider trends over fairly long-term periods.
