Objective and Perceived Income Inequality: A Comparative Analysis in Cross-sectional and Time Dimensions

Abstract Objective: Theories about perceived income inequality and its relationship to objective income inequality are contradictory and contentious. Some research indicate that individuals are appropriately aware of income inequality, while others claim that citizens are inconsistent or inaccurately conscious of inequality. Some study reveals that people tend to underestimate the actual extent of income differences in their communities, whilst studies in specific societies demonstrate that people overestimate the level of inequality. Survey questions about income inequality reveal that people are more likely to perceive income differences as high or extremely high. There is significant variation between countries in terms of perceived income disparity and its relationship to the actual status of income distribution. The primary goal of this research is to better understand the influence of objective income inequality in determining perceptions of income inequalities between nations and in time dynamics. Novelty: The study integrates selected dimensions of perceived income inequality in a novel way, including three components of perceived income inequality, which improves knowledge of how people interpret and perceive income discrepancies. Methods: The study investigated two hypotheses. To test the first hypothesis, data from the ISSP Social Inequality 2019 survey was used to run different multilevel models that included three dimensions of perceived income inequality. To assess the second hypothesis, time series analyses were carried out on data from the ISSP Social Inequality 2009 and 2019 surveys. Results: The results of testing hypothesis 1 showed that the objective income inequality measure, the Gini index, was insignificant across almost all models for the three dimensions of perceived income inequality. However, subjective social status and future expectations had a highly significant positive effect on perceived income inequality dimensions. Additionally, an increase of one unit in GNI per capita in countries, on average, leads to a more positive perception of income inequality. Conversely, the results of testing the hypothesis 2 over time indicated that the Gini index had a highly significant negative effect on perceived income inequality, while GNI per capita differences were insignificant in the long term. Subjective social status consistently had a highly significant positive effect in the time dynamics. Keywords: perceived income inequality, objective inequality, Gini, GNI per capita, future expectations