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Reports indicate increasing economic inequality in Nepal during the era of parliamentary democracy begun in 1990. The extent and the mechanisms by which this increase has occurred are not fully understood, however. Using micro level survey data on consumption expenditures, incomes, and wealth, this paper finds large and slightly increasing economic inequality between 1996 and 2004. Income from house rental, employment, businesses, and remittances as well as the stock of wealth in real estate and housing and businesses are the leading sources of inequality. Horizontal and vertical inequalities have increased along the caste/ethnic and spatial lines, providing a strong impetus to the ongoing political instability in the country. These dimensions of inequality have important social, political, and policy implications in the country.