Throughout the developing world, policy makers are interested in devising new strategies for improving income distribution and reducing poverty. In large part, the choice of such strategies depends on an improved understanding of the sources of income inequality. Why do certain types of incomes go to different set of people? And what roles do variables such as education and migration play in improving income distribution and in lifting people out of poverty? This work attempts to answer these questions for rural Pakistan by analyzing a three-year panel data set collected in collaboration with four research institutes in Pakistan. This extensive series of household interviews enables the authors to examines many dynamic income-related issues that cannot be adequately addressed suing cross-sectional data. By analyzing the contribution of more than 30 different sources of income to income inequality, and by examining how various family characteristics- such as education and migration- affect the movements of households into and out of poverty, the author is able to shed new light on a variety of income-related issues. The report is part if a wide-ranging series of IFPRI studies focused on Pakistan. The first IFPRI study based on this three-year panel data is Poverty, Household Food Security, and Nutrition in Rural Pakistan, Research Report 96. Other studies are planned in the areas in the areas of rural credits, human capital accumulation, and water management. Earlier IFPRI collaborative work in Pakistan included macroeconomic studies such as Effects of Exchange Rate and Trade Policies on Agriculture in Pakistan, Research Report 84, and The Demand for public storage of when in Pakistan, Research Report 77. All of these studies were part of a Food Security Management Project jointly undertaken by IFPRI, the government of Pakistan, and the U.S. Agency for International Development (USAID) Mission in Pakistan.