relationships. Section 4.c describes how we use data on pandemic aid transfers made during 2020 to construct a proxy measure of informal employment.

First, we obtained data on account ownership, from the Registry of Clients of the Financial System (CCS). The CCS includes information about every account held in financial institutions since 2001, including checking, savings, payments, and investment accounts. According to the Financial Citizenship Report 2018, information contained in CCS implied that 86.5 percent of the residents in Brazil aged 15 or older had a bank account.<sup>7</sup> The original data contains opening and closing dates for all accounts, which we turn into a monthly panel. Unfortunately, the CCS does not provide account balances, fees, and transactions.

Second, we have detailed information on credit. Set up in 2003 to monitor risk, the Credit Registry System (SCR) collects from lenders monthly information about every financial transaction conducted by clients who can cause the lender a loss greater than a given amount. This threshold was of BRL 5,000 from 2003 until 2012, when it fell to BRL 1,000. It was reduced again in June 2016 to BRL 200 (corresponding to around USD 46<sup>8</sup> ). We use data from 2016 onwards, since the SCR includes relatively few transactions for our sample before the threshold reduction to BRL 200. For each transaction, the SCR records the amount, credit category, interest rate, due date, and amount in delay or classified as a loss. In December 2019, the SCR contained information on over 127 million individuals (around 60 percent of the Brazilian population).

Third, we build a data set of individual microentrepreneurs (MEI) using the registry of firms from the Brazilian tax authority (SRF) for 2012 through 2020. MEI is a type of firm with a simplified registration process, created in 2008 by Complementary Law 128. The only tax MEIs need to pay is a flat monthly fee below USD 15, whose major component is a contribution to the public pension system. An MEI is subject to a revenue cap of BRL 81,000 (about USD 17,000) per year and can hire at most one employee. Registration as an MEI (as opposed to operating without registration) has the advantage that it allows entrepreneurs to provide receipts to their customers, increasing the pool of partners with whom they can conduct business. The name of an MEI is automatically generated as the name of its owner concatenated with the CPF, allowing us to match the MEI database with our sample via the CPF. At the end of 2019, the SRF registry of firms included 12.8 million MEIs, representing about 42 percent of all firms in the SRF registry.<sup>9</sup> We do not use data on other types of firms in our analysis since they have identification numbers that are not clearly linked to the CPF of the owner.

Fourth, we use data on formal employment from RAIS,<sup>10</sup> a database maintained by the Ministry of Labor. In RAIS, all employers in Brazil are required to report their employees who have a written contract. RAIS also includes information on wages, education, gender, sector, and type of occupation. However, RAIS is not designed to capture business owners or the self-employed. We

> 7 Available in Portuguese at <u>https://www.bcb.gov.br/content/cidadaniafinanceira/Documents/RIF/Relatorio%20Cidadania%20Financeira_BCB_ 16jan_2019.pdf</u>

> 8 Using the exchange rate of 4.3410 BRL/USD, of February 2020 (free exchange rate - period average).

> 9 For the pre-2018 period, we drop 1.37 million MEIs that were determined to be inactive in a 2018 audit. Including these MEIs in the analysis does not change our findings.

> 10 RAIS is the Annual Report of Social Information (Relação Anual de Informações Sociais).

11