total monthly income for each individual. Finally, the computer sums this individual total monthly income across all household members and divides it by the number of household members.

The government then transfers a monthly, unconditional benefit (referred to as the “basic benefit”) to all households reporting a per-capita income below the “extreme-poverty threshold” and transfers an additional benefit (referred to as the “variable benefit”) to households with children who have a reported per-capita income below the higher “poverty threshold” conditional on these households making health and education investments in their children.<sup>24</sup> Between July 2009 and June 2014, the extreme-poverty threshold was R$70 per-capita, per-month and the poverty threshold was R$140 per-capita, per-month.

Finally, the MDS has several enforcement mechanisms to prevent income misreporting. First, during the interview, the income questions come at the end of the questionnaire so that questions on expenditures and assets can help the interviewer asses the veracity of the reported income (Bastagli, 2008). Second, during the interview, the applicant is reminded of her responsibility to provide true statements under penalty of losing the right to be eligible for government programs (Gazola Hellmann, 2015). Third, the ministry conducts audits, which can be triggered by citizens’ complaints and cross-checks of registry data with other datasets such as administrative data on formal employment, deaths, or automobile purchases (Gazola Hellmann, 2015). However, despite these attempts, the large informal sector in the Brazilian economy leaves substantial scope for misreporting, which we conjecture is an important response margin to the reform.

# _3.1 Data Sources and Sample Description_

We have access to the Cadastro Unico<sup> ́</sup> household registry, which is used to determine the eligibility of households for BF as well as all other targeted federal social programs (Veras Soares, 2011). Many of these other programs have eligibility criteria above the BF thresholds which explains the large number of ineligible applicants in the registry.<sup>25</sup> These other programs do not change concurrently with the BF reform that we analyze and are discussed in more detail in Appendix B.2.

The final data set is constructed by appending eight extractions of the registry: one in December of each year from 2011 until 2015, one in April 2015, one in August 2015, and one in September 2016.<sup>26</sup> Each extraction contains the latest information for all households on the registry at the time of the extraction date. For instance, if a household updated its information in August of 2011 and September 2013, its information will appear as of August of 2011 in the 2011 and 2012 extractions and as of September 2013 in the 2013, 2014, 2015, and 2016 extractions. The reform to BF that we study occurred in June 2014. Summary statistics on household per-capita income and number of family members as of June 2014 are displayed in Table 2. Note, 24. Technically, eligible families do not automatically become BF beneficiaries. There is a quota (cap) on the number of beneficiaries per municipality. Prior to 2009, these quotas were based on the predicted number of households below the poverty threshold in each municipality. Post 2009, these quotas were based on the predicted number of households below the poverty threshold scaled by 1.18 (Gerard, Naritomi and Silva, 2021). If the number of eligible families exceeds the quota in a municipality, priority is assigned first to certain vulnerable populations (indigenous families, Quilombola families, families with children in child labor, families who collect recyclable materials, families with members free from situations similar to slave labor), second to families with lower per-capita income, and third to families with a larger number of children. Given our focus will be on households reporting below the extreme-poverty threshold post 2009, we believe that it is reasonable to assume that the vast majority of these households do in fact receive the basic benefit.

25. Moreover, the government aims to register all families with per-capita incomes below half the minimum wage (or total incomes below three times the minimum wage) (Veras Soares, 2011). The minimum wage was R$724 per-month in 2014; thus half the minimum wage was R$362, which is substantially higher than the highest BF threshold.

26. Every time the MDS analyzes the Cadastro Unico<sup> ́</sup> data, it creates one of these extractions. Therefore, the frequency of the extractions are a result of previous data analyses by the ministry. Appendix B.3 contains a figure depicting the timeline of the data extractions.

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