Mental Accounting, Remittances, and Celebrations

Abstract

Is one KGS of remittance income equal to one KGS of another source of income? The traditional concept of fungibility suggeststhat it is. However, if it is not, then migrant money transfers may cause behavioral changes at the household level, and their de-velopment impact can be huge. Contrary to most studies, which take this assumption as given, the present study explicitly testsit using evidence from Kyrgyzstan, which frequently ranks among the top countries in the world by its share of personal remit-tances 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 celebratoryevents, in line with popular claims in the media. The results demonstrate that remittance income and other income are not fun-gible, 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 fungibilityassumption in economics, the findings suggest that the massive remittance inflows into the country might not have the positivedevelopment impact that they potentially could.