The exercise makes the important assumption that the mean value of expenditures (or income) in the household data surveys, is equal to the mean household consumption (or income) in the national accounts data. It has been widely documented that these two measures often do not coincide: national accounts consumption is usually higher than household survey consumption (see Dhongde and Minoiu, 2010, Ravallion, 2003 and Deaton, 2005 for a discussion). Deaton (2005) makes the important point that rich households are less likely to participate in surveys than poor people, thus resulting in an understated mean consumption of the country and therefore an overstated fraction of people living in poverty (which also understates the size of the middle class). Given that the purpose of this paper is to simulate future trends (2005-2030) in Latin America‘s middle class, using per capita mean consumption from national accounts has the advantage that mean consumption growth can be projected with GDP growth assuming that the mean of the distribution grows at the same rate. Latin America is not currently a middle class region. Only four Latin American economies have a large middle class (more than half the population in 2005): Argentina (52.9 percent), Costa Rica (51.8 percent), Mexico (60.1 percent) and Uruguay (55.8 percent). Bolivia had the smallest middle class in 2005 with 13.7 percent of its population, followed by Honduras (16.5 percent) and by Guyana (17.4 percent). The average size of the middle class for the region is 36.3 percent (data for 2005). Latin America has a relatively large middle class in comparison to China and India, where it accounted for only 3.8 and 2.8 of the percent of the population, respectively in 2005.
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