Abstract: This paper develops a micro-econometric method to account for differences
across distributions of household income. Going beyond the determination of earnings in
labor markets, we also estimate statistical models for occupational choice and for the
conditional distributions of education, fertility and non-labor incomes. We import
combinations of estimated parameters from these models to simulate counterfactual income
distributions. This allows us to decompose differences between functionals of two income
distributions (such as inequality or poverty measures) into shares due to differences in the
structure of labor market returns (price effects); differences in the occupational structure;
and differences in the underlying distribution of assets (endowment effects). We apply the
method to the differences between the Brazilian income distribution and those of the United
States and Mexico, and find that most of Brazil's excess income inequality is due to
underlying inequalities in the distribution of two key endowments: access to education and
to sources of non-labor income, mainly pensions.