The Normative Analysis of 'Tagging' Revisited: Dealing with Stigmatization

Abstract

Should income transfers be conditional upon personal characteristics of the potential recipients (the so-called "tagging") or should they only be tied to reported incomes? There is clear evidence that tagging and its assessment of the eligibility of applicants creates stigmatization. In this context, tagging is always suboptimal under a Maximin criterion. With a utilitarian criterion, tagging can only be recommended if the distribution of the intensity of stigmatization relative to earnings has small mean and variance and if the mean and variance of distribution of abilities among the high-ability people are neither too large nor too small.

Keywords: Tagging, optimal taxation, welfare programs, stigmatization

JEL Classification: H2, I3