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How household consumption responds to credit card refunds

Author

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  • Xu, Yonghao
  • Meng, Juanjuan
  • Zhang, Yu
  • Koo, Jeffrey

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.

Suggested Citation

  • Xu, Yonghao & Meng, Juanjuan & Zhang, Yu & Koo, Jeffrey, 2021. "How household consumption responds to credit card refunds," Economics Letters, Elsevier, vol. 198(C).
    • Handle: RePEc:eee:ecolet:v:198:y:2021:i:c:s0165176520304432
    DOI: 10.1016/j.econlet.2020.109683
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    References listed on IDEAS

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    Cited by:

    1. Silva, Emmanuel Marques & Moreira, Rafael de Lacerda & Bortolon, Patricia Maria, 2023. "Mental Accounting and decision making: a systematic literature review," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 107(C).

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    More about this item

    Keywords

    Mental accounting; Consumption; MPC; Credit card refunds;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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