Income Distribution Dynamics Across Swiss Cantons

The purpose of this paper is to investigate convergence of per capita incomes across Swiss cantons. Contrary to the "classical approach", convergence is explored here by means of homogenous discrete state Markov processes and by nonparametrically estimating conditional income distributions. We find that over the last almost three decades two trends were at work. The period between 1965 and 1980 was characterized by a significant narrowing of the spread of the relative income distribution. After 1980, however, the spread increased again, almost completely offsetting the previous reduction. The shape of the distribution of relative incomes reveals a high concentration of density around the median income, a pattern that is unlikely to change in the future.