# **VI. Final remarks**

This study analyzes the impacts of adjusting the LAC lower and upper-middle-class regional thresholds when new and better rounds of PPPs are estimated. First, the paper proposes a two-step methodology to update these thresholds. The first step consists in building two-year synthetic panels between 2015 and 2019 for 15 countries in the LAC region. It is based on the paper by Lucchetti et al. (2020) and introduces several improvements in the methodology: matching is done using constrained donation subsets based on gender, birth year, and educational attainment; introduces weights harmonization procedure to preserve the original distribution in terms of relevant variables for the analysis; neighbor selection is based on random selection within the subset of closest neighbors, considering the sampling design of the donor survey; it implements more bootstrap repetitions to achieve more accuracy in estimates, etc. The second step defines the _lower bound_ as the median per capita household income over households who were not poor in the initial year and became poor in the final year and the _upper bound_ as the maximum per capita income (99th percentile) over those who have changed their status. This yields a vulnerability or lower-bound line of $14 in 2017 PPP per person per day and a middle-class or upper line of $81 in 2017 PPP. These thresholds are robust to expanding the set of countries, widening the time interval, increasing the number of repetitions, and implementing previous methodologies.

This study analyzes the impact on the LAC regional poor, vulnerable, and middle-class groups estimate using the international poverty lines (IPL), the regional vulnerability and middle-class lines, and the 2017 PPPs. While the changes at the upper-middle-income line ($6.85 in 2017 PPP) are significantly larger, the 2017 PPPs have small implications for extreme poverty and poverty at the lower-middle-income line ($2.15 and $3.65 lines). Extreme poverty and poverty at $3.65 would increase marginally by 0.3 and 0.9 percentage points (pp.), respectively in 2017, with the 2017 PPPs. The regional count of the extreme poor increased by 1.9 million, largely driven by 1.3 million and 300,000 more poor people in Brazil and the Andean region, while poverty increases in all other subregions except the Southern Cone. Considering the upper-middle income country line, the incidence of poverty in the region rose around 5 percentage points in 2017 with the 2017 PPP. This represents 27 million more poor people in LAC driven by 12 million and 5.5 million in Brazil and the Andean region, respectively.

A significant increase in the poor population is mirrored by a decrease in the size of the vulnerable group by around 5.4 pp with the revised lower-middle-class bound of $14 in 2017 PPP. The regional vulnerability trend is due to declines in the Andean region and Central America offset by increases in countries in the Southern Cone, including Brazil, since 2012. With the update of the upper-middle-class threshold of $81 in 2017 PPP, the size of the middle class slightly increases regionally by less than 1pp and remains the largest socioeconomic group in the LAC region since 2010. Between 2010 and 2020, changes in the middle class at the LAC level are relatively small as increases in the three subregions (i.e., Andean, Central America, and Southern Cone) and Mexico are offset by Brazil. This change in lower and upper middleclass limits provides a similar positive trend for this group over the last two decades. More importantly, these updates in thresholds do not significantly impact the profiles of the poor, the vulnerable, or the middle-class populations, which yield similar policy choices.

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