Tags vs folders

Folders provide hierarchy, tags faciliate finding things more easily and having a complete list of items that belong to this tag. How can the two be merged? Nested tags, i.e. tags that are a sub-tag of another tag combined with a dynamic folder that includes all items of the particular tag. Whilst this will result in some items occuring in the folder structure twice, it does not result in duplication as it is generate dynamically from the underlying tab-based database.

This works best with the kind of mouse-over menu that opens the folder beneath when the mouse is hovered over. For example, the site wikipedia.org would be tagged in my bookmarks both as "reading" (i.e. something to do when bored!) and "reference". When I hover over the "reading" tag it displays a list with wikipedia in it, and also when I hover over the "reference" tag. Wikipedia would also be tagged as a "wiki" a sub-tab with my tag "website design" (because I might want examples of wikis as inspiration for my website design). When I hover over "website design" it gives me a list of sub-tags and links in that tag. I then move the mouse over to hover over the sub-tag "wikis" and there again is wikipedia.