Credit Constraint and Human Capital Investment: an empirical analysis using Brazilian Household Budget Survey 1 FlÆvia Chein y and Cristine Pinto + Abstract This paper is a rst step to understanding the relationship between credit market imperfections and inequality of opportunity in skill formation.The main goal is to identify the e/ects of the credit constraint on the optimal decision to human capital, in terms of degree of instruction, taking into account the household preferences for education. Our starting point is the theoretical model of Lochner & Monge-Naranjo (2011). Following their model, we propose a reduced form approach that estimates the relation between education decision and initial wealth in Brazil. This empirical analysis is conducted using data from a Brazilian Household Budget Survey (POF), for years 2002- 2003 and 2008-2009. Our results point out that education decision is in fact credit constrained. The empirical estimates show a strong and highly signicant e/ect of wealth on educational level of children, teenagers and adults, even controlling by education expenditures. On average, the initial wealth was responsible for an increase of more than 5 years of schooling. But we nd no evidence of credit constraint on high level education decision, like undergraduate and graduate levels. Resumo Este artigo Ø um primeiro passo para entender a relaªo entre imperfeiıes do mercado de crØdito e desigualdade de oportunidades na formaªo de habilidades.O objetivo principal Ø identicar os efeitos da restriªo de crØdito sobre a decisªo tima de investimento em capital humano, em termos de grau de instruªo, controlando pelas preferŒncias pela educaªo do domiclio. O ponto de partida Ø o modelo terico de Lochner & Monge-Naranjo (2011). Seguindo seu modelo, propıe-se uma abordagem na forma reduzida para estimar a relaªo entre a decisªo de educaªo e riqueza inicial no Brasil. Esta anÆlise emprica Ø realizada utilizando dados das Pesquisas de Oramento Familiar do Brasil (POF), para os anos 2002-2003 e 2008-2009. Os resultados encontrados indicam que a decisªo sobre investimento em educaªo enfrenta, de fato, restriıes de crØdito. As estimativas empricas mostram um efeito forte e altamente signicativo da riqueza sobre o nvel educacional de crianas, adolescentes e adultos, mesmo controlando por gastos com educaªo. Em mØdia, a riqueza inicial Ø responsÆvel por um aumento de mais de 5 anos de escolaridade. Entretanto, nªo hÆ nenhuma evidŒncia de restriªo de crØdito sobre a decisªo de investimento em ensino superior ou ps-graduaªo. JEL Classication: C5, I25, D3, DI Key Words: Wealth, credit constraint, human capital, educational attainment Palavras Chave: Riqueza, restriªo de crØdito, capital humano, anos de estudo Area: 12 - Economia Social e Demograa Econmica 1 This project received funds from Swiss Program for Research on Global Issues for Development (r4d program) under the thematic research module Employment in the context of sustainable development and the research project Trade and Labor Market Outcomes in Developing Countries. We are also thankful to CNPq and FAPEMIG for nancial support. y Department of Economics, Federal University of Juiz de Fora; Research Productivity Fellow (CNPq National Research Council);E-mail: avia.chein@ufjf.edu.br; /chein@gmail.com + Sªo Paulo School of Economics - EESP/ FGV; Research Productivity Fellow (CNPq National Research Council); E-mail: cristine.pinto@fgv.br.