This study investigates the impact of the digital economy on income inequality in the EU28 countries, using a fixed effects model and panel data from 2015 to 2021. The research employs the skill bias theory to explore the complex relationship between the digital economy and income inequality. The findings indicate that the digital economy has a linear dampening effect on income inequality, with no non-linear relationship. The study further analyzes the underlying mechanisms, revealing that mining activities and remittances suppress income inequality, while government spending promotes it. Additionally, the heterogeneity analysis shows that the dampening effect of the digital economy on income inequality is stronger in capitalist countries compared to ex-communist countries. These results provide valuable insights for policymakers and stakeholders to address income inequality in the digital age, promoting more inclusive and equitable economic development strategies.This study investigates the impact of the digital economy on income inequality in the EU28 countries, using a fixed effects model and panel data from 2015 to 2021. The research employs the skill bias theory to explore the complex relationship between the digital economy and income inequality. The findings indicate that the digital economy has a linear dampening effect on income inequality, with no non-linear relationship. The study further analyzes the underlying mechanisms, revealing that mining activities and remittances suppress income inequality, while government spending promotes it. Additionally, the heterogeneity analysis shows that the dampening effect of the digital economy on income inequality is stronger in capitalist countries compared to ex-communist countries. These results provide valuable insights for policymakers and stakeholders to address income inequality in the digital age, promoting more inclusive and equitable economic development strategies.