The decision on unconstitutionality of earmarking and its impact on the housing access: Evidence from São Paulo State, Brazil

An important challenge in the earmarking literature is to isolate causal effects of earmarking decisions on public goods supply. Following the Brazilian Supreme Court�s decision on unconstitutionality of S�o Paulo State�s earmarking policy to face housing deficit, in September 1997, earmarked resources to fund the CDHU were forbidden. The Supreme Court�s decision created an uncertain housing policy scenario,especially, to households with a housing deficit. The Supreme Court intervention can be assumed to be exogenous to a housing deficit econometric model. The decision on unconstitutionality of the earmarking mechanism for housing construction by the Brazilian Court allows identifying an exogenously determined pre and post treatment situation, with the households between zero and five-minimum wages and households between five and six-minimum wages defining the treatment-group and control-group, respectively, along the lines of the eligibility rule by the CDHU. We apply a difference-in-difference empirical model with non-linear estimators. Our results suggest that low-income households under uncertainty face an average increase of 1.8% in the probability to remain in a housing deficit condition and indicate that low-income households depend on the government earmarking policy.