The Optimal Marginal Tax Rates with both Extensive and Intensive Responses  Work in Progress. Laurence JACQUET y Norvegian School of Economics and Business Administration and UniversitØ Catholique de Louvain Etienne LEHMANN z CREST, IZA, IDEP and UniversitØ Catholique de Louvain Bruno VAN DER LINDEN x IRES - Department of Economics - UniversitØ Catholique de Louvain, FNRS, ERMES - UniversitØ Paris 2 and IZA May 3, 2009 Abstract This paper characterizes the optimal income taxation when labor supply is simultaneously modeled along both the extensive and the intensive margins. Individuals are heterogeneous in two dimensions: their skills and their disutility of participation. We also allow preferences over consumption and work e/ort to di/er with respect to the skill level, only the Spence- Mirrlees condition being imposed. We derive a fairly mild su¢cient condition for nonnegative marginal tax rates throughout the entire skill distribution. Examples illustrate that this condition is satised in many contexts. From a methodological viewpoint, we propose a technic to sign distortions along the intensive margin in monopoly screening model with random participation. JEL Classication: H21.  We thank for their comments participants at seminars at Greqam-Idep in Marseille, CREST and NHH, with a particular mention to Pierre Cahuc, Nicolas Gravel, Guy Laroque, Agnar Sandmo, Fred Schroyen, Alain Trannoy and Jean-Benot Zimmermann. Any errors are ours. Laurence Jacquet would like to thank Skipsreder J.R. Olsen og hustrus legat to NHH. This research has been funded by the Belgian Program on Interuniversity Poles of Attraction (P6/07 Economic Policy and Finance in the Global Economy: Equilibrium Analysis and Social Evaluation) initiated by the Belgian State, Prime Ministers O¢ce, Science Policy Programming. y Address: Norwegian School of Economics and Business Administration, Economics Department, Helleveien 30, 5045 Bergen, Norway. Email: laurence.jacquet@nhh.no z Address: CREST-INSEE, Timbre J360, 15 boulevard Gabriel PØri, 92245, Malako/ Cedex, France. Email: etienne.lehmann@ensae.fr. x Address: IRES - DØpartement dØconomie, UniversitØ Catholique de Louvain, Place Montesquieu 3, B1348, Louvain-la-Neuve, Belgium. Email: bruno.vanderlinden@uclouvain.be 1