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Background The association between income inequality and health has been analyzed predominantly in developed countries with modest levels of inequality. The study aimed to analyze the association between income inequality and self-reported health (SRH) in the adult population of the 27 Brazilian capitals. Methods Individuals aged 18 years or older from the National Health survey residing in Brazilian capitals in 2013 were analyzed (n = 27 017). Bayesian multilevel models were applied after controlling for individual factors and area-level socioeconomic characteristics. Results We found a significant association between income inequality and SRH, even after controlling for individual and contextual factors. The results indicate greater odds of poor SRH among those living in areas with medium (OR = 1.31, 95% CI: 1.17–1.47) and high income inequality level (OR = 1.39, 95% CI: 1.24–1.56). Income inequality remained significantly associated with SRH, even after controlling for other contextual socioeconomic characteristics, such as local illiteracy rate, violence and per capita income. Conclusions The study highlights the importance of the individual and contextual characteristics associated with SRH. Our findings suggest that city-level income inequality can have a detrimental effect on individual health, over and above other contextual socioeconomic characteristics and individual factors. [ABSTRACT FROM AUTHOR]