Should income transfers be conditional upon personal characteristics of the potential recipients (so-called tagging), or should they only be tied to reported incomes? A still widespread social norm consists in requiring that individuals (of working age) support themselves and their families....

We study optimal income taxation when labor supply reacts along the intensive and extensive margins. Individuals are heterogeneous across two unobserved dimensions: their skill and disutility of participation. We develop a new method to analytically derive conditions under which optimal marginal...