How household consumption responds to credit card refunds

Yonghao Xu, Juanjuan Meng, Yu Zhang and Jeffrey Koo

Economics Letters, 2021, vol. 198, issue C

Abstract: With the widespread growth of online commerce, we observe an increasing amount of refunds on purchases. Do these refunds affect consumption differently than regular income such as salaries? This paper uses transaction-level data from a bank to examine the marginal propensity to consume (MPC) of credit card refunds. We find that the MPC of credit card refunds is approximately 0.7 for the following week, while the MPC of salaries is only 0.021. We also find that the MPC increases with the refund size while decreases with salary amount. These findings add novel evidence to the mental accounting theory from refunds on purchases.

Keywords: Mental accounting; Consumption; MPC; Credit card refunds (search for similar items in EconPapers)
JEL-codes: D11 D12 E21 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:198:y:2021:i:c:s0165176520304432

DOI: 10.1016/j.econlet.2020.109683

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