Independence and Changes in the Size Distribution of Income

It has been suggested that the size distribution of income follows a pure random walk. If true, this has serious implications for the effectiveness of U.S. Government income transfer policies. In this paper the random walk hypothesis is addressed by examining whether changes in the size distribution of income are independent. Conventional linear second-order time series analysis suggests that the first differenced series indeed are white noise processes. Results obtained with Mizrach's SNT test, based on developments in the recent literature on nonlinear dynamics, strongly reject the independence null for changes in each of the income inequality measures examined. While this suggests that year-to-year shifts in the income distribution are not random, it does not show that U.S. Government income redistribution policies have been either efficient or effective.