There is definitely convergence and bullet drop, even on arcade difficulty. Just fly absolutely level and fire while zooming and you'll see.
If the bullets themselves lose energy and get weaker by distance is a more interesting question imo. Sometimes I feel like I can't do any damage at all from 1000-1500 meters despite hitting my target. Of course this may simply be because only one or two bullets actually hit, but it would be cool with a definite answer to this.
