---- Acknowledgements -----
This paper has been prepared for the Mirrlees Review - Reforming the Tax System for the 21st Century, http://www.ifs.org.uk/mirrleesreview/. The authors are grateful for helpful suggestions from the editors of this volume, from Paul Johnson and Nick Stern, and from all participants at the conferences where this work was presented and discussed. We are particularly grateful to Agnar Sandmo, the discussant at the 2007 conference. Any views expressed here are solely those of the authors, however, and we are responsible for any remaining errors.