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… Click to show full abstract
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 refunds while decreases with salaries. These findings add novel evidence to the mental accounting theory from refunds on purchases.
               
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