Mental Accounting, Remittances, and Celebrations

Is one KGS of remittance income equal to one KGS of another source of income? The traditional concept of fungibility suggests that it is. However, if it is not, then migrant money transfers may cause behavioral changes at the household level, and their development impact can be huge. Contrary to most studies, which take this assumption as given, the present study explicitly tests it using evidence from Kyrgyzstan, which frequently ranks among the top countries in the world by its share of personal remittances in GDP (20.4% in 2023). Using the dataset “Life in Kyrgyzstan” that covers 3000 households over 6 years (2010 to 2013, 2016, 2019), this paper further explores whether Kyrgyz households spend more of their remittance income on lavish celebratory events, in line with popular claims in the media. The results demonstrate that remittance income and other income are not fungible, and thus, mental accounting matters. Households spend most of their remittance income budget on consumption goods, including celebrations, funerals, and rituals, compared to income from other sources. In addition to challenging the fungibility assumption in economics, the findings suggest that the massive remittance inflows into the country might not have the positive development impact that they potentially could.