"A 20% income increase for everyone?": The effect of relative increases in income on perceived income inequality

• When incomes are raised by a fixed fraction, income inequality should not change.
• We show that such increases in income lead to increased perceptions of inequality.
• We show this effect for familiar and fictitious currencies.
• An income increase by a fixed fraction also influences feelings of envy and fairness.
• These effects are (partly) mediated by perceived inequality.

Most research on income inequality implicitly assumes that a fixed percentage increase in income across all income levels does not alter income inequality. In contrast with this assumption, we show that relative increases in income lead to increased perceptions of inequality, even when buying power is held constant. In a second experiment, we extended these findings using a fictitious currency, thereby eliminating effects of using a familiar currency. In study 3, we demonstrate that feelings of envy and fairness are affected by a fixed percentage income increase.