This paper intends to show that economic incentives can affect the decisions of self-employed people whether to join or not the Brazilian social security system using a Principal-Agent framework. Relaxation of the rules for low income workers to access social security benefits promoted by the Federal Constitution of 1988 provides a laboratory to test such a model. The empirical analysis, however, contradicts the expectations of the theoretical model. There is a general movement of withdrawal from the social security system yet this movement is more pronounced at the richest self-employed group. In theoretical terms, this is explained by a violation of the incentive compatibility constraints. One possible explanation is that the increase in the availability of private pension funds in the market has created competition for the government system.
social security; informality; self-employed; labor market
