OBJECTIVE : In this study, we aim to test whether changes in community income inequality influence adolescent emotional distress. We take advantage of the unique combination of data and history available in Iceland. This affluent welfare society has experienced extreme shifts in income inequality, allowing us to test whether changes in community income inequality are related to changes in adolescent emotional distress. METHODS : Combining adolescent survey data (n = 24,107) with tax registry data on 76 neighborhood communities, we used a multilevel approach to model the data as longitudinal in order to test whether changes in community income inequality are related to changes in symptoms of anxiety and depression among adolescents. RESULTS : The results showed that, after adjusting for relevant individual and community covariates, decreases in community income inequality were associated with decreases in symptoms of anxiety among adolescents (b = - 0.367, p ≤ 0.001), but not with decreases in symptoms of depression. CONCLUSIONS : While the results provide a partial support for the income inequality thesis, we call for replications from other cultures and studies exploring the mediating role of social psychological processes.