Swiss Journal of Economics and Statistics

, Volume 144, Issue 2, pp 117–151 | Cite as

Improving Models of Income Dynamics Using Cross-Section-Information

  • Robert Aebi
  • Klaus Neusser
  • Peter Steiner
Open Access


Based on a relative entropy approach, this paper proposes a method to estimate or update transition matrices using just cross-sectional observations at two points in time. The method is then applied to explain the development of the US income distribution. Starting from three hypothesized transition matrices and a transition matrix estimated from the PSID data, we show how these matrices must be adjusted in the light of the cross-sectional information. Finally, we explore the consequences of these updated transition matrices for the future development of the US income distribution.


income distribution income dynamics relative entropy 


D31 C51 


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Copyright information

© Swiss Journal of Economics and Statistics 2008

Authors and Affiliations

  • Robert Aebi
    • 1
  • Klaus Neusser
    • 2
  • Peter Steiner
    • 2
    • 3
  1. 1.Institut de Recherche Mathématique AvancéeUniversité Louis PasteurStrasbourg CedexFrance
  2. 2.Department of EconomicsUniversity of BernBernSwitzerland
  3. 3.State Secretariat for Economic Affairs, SECOBernSwitzerland

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