Economics: Recently I was in Rome and noticed how slim, elegant and healthy most Italians are. I love going to Rome, but walking around a city full of natural born supermodels when you look like a couch potato can be demoralising, writes Marc Coleman

Now I could exercise and lose that jowl and those love handles before my next trip. But here's another idea. Supposing instead that the Romans oblige me by gorging on fish and chips and drinking Guinness for a year? Then on my next trip, I wouldn't look so bad, relatively speaking.

The couch potato economies of Europe are thinking along the same lines. For them Ireland is too lean and fit for comfort. As it happens we are not as fit as they think, but leave that aside for a moment. Rather than them getting fit, they'd prefer us to oblige them by expanding our public sector waistline, and raising our rate of corporation tax to help pay for it. That rate is 12.5 per cent and is a major, if not the only, attraction for multinationals operating here.

On Wednesday, the Economic and Monetary Affairs Committee of the European Parliament voted by majority to support a common consolidated corporate tax base. If supported by the European Council, it could be the first step towards a drive to supersize our tax rates.

To some politicians on this committee, Ireland's low taxes and flexible labour markets constitute the dangerous threat of a good example. They speak of a "race to the bottom" where public services will be put under pressure by lower tax rates. But the real problem is that in their own countries public spending is bloated and inefficient.

In Germany, for example, the coal industry survives, despite massive financial losses and a horrendous legacy of pollution, due to the political strength of Germany's unions and their links to the Social Democratic Party. These subsidies are a major obstacle to reducing taxation and stimulating domestic demand and job creation. Rather than dealing with this problem, some German politicians argue that jobs are being lost to unfair competition as companies move to countries where taxes on capital (in this sense profits) are lower.

But there is a considerable body of evidence that disproves this. One such (Are Capital Taxes Racing to the Bottom in the European Union; Krogstrup, S; 2003) showed that there was no meaningful evidence to support this contention. Another paper (Is Fiscal Co-operation Always Sustainable when Regions Differ in Size; Taugourdeau and Vidal; 2002) shows that when so-called asymmetries are present, tax harmonisation need not be necessary.

Asymmetry in this case is a fancy word for factors that create a naturally high level of productivity that can compensate for high corporation taxes. Efficient markets for non-traded goods, closeness to key markets and accumulated business expertise and research and development are just some examples.

Where such naturally high productivity exists, higher corporation taxes can be sustained. In Germany productivity is naturally high, due to excellence in engineering and efficient non-traded markets. Germany's corporation tax rate is relatively high by Irish standards. But that is not why Germany is losing industries. It is rather Germany's high income taxes and rigid labour laws that are driving companies away.

That doesn't stop some German politicians from using low corporation tax rates as a whipping boy for their own failure to reform.

Our own low corporation tax does not really cause German or French factories to close. True they have diverted some back-office financial activity to the IFSC. But their main target, and success, has been in attracting mobile foreign direct investment. And these low tax rates help our indigenous companies to overcome a low level of natural productivity here.

For these reasons the National Competitiveness Council (NCC), recommended that we continue to support the goal of low corporation tax. But two NCC members, Paul Sweeney and Peter McLoone, entered an objection to this recommendation.

They observed that Nordic countries had high levels of taxation, but were also high in productivity. They were not arguing for a high-tax economy for its own sake, pointing out that there is more to being competitive than just low taxes.

Fair enough. Low taxes are certainly not a guarantee of high productivity. But they are a necessary, prerequisite. We still lack the level of natural productivity that could offset the negative impact of higher corporation tax. Our indigenous sector is more exposed than multinationals to our peripheral location and our still emergent industrial culture. As Davys stockbrokers have pointed out in a recent analysis of recent productivity developments, productivity in our indigenous sector is still far weaker than in industry as a whole.

Neither is Ireland any more a low-tax economy. As Donal de Butléir and Pat MacArdle pointed out two years ago, Ireland has a very low proportion of old people, low defence spending and - thanks to past prudence - a low requirement to service debt. They have shown that when these factors are taken into account, the share of spending devoted to real public services was close to the EU average. And the average share of public spending in the EU, 47.3 per cent of GDP, is nothing to shout about. It is directly related to a high burden of taxation which raises the cost of hiring workers and penalises employment. In Japan, government spending is 38.7 per cent of GDP and in the US it is 32.3 per cent. And those figures are positively Scandinavian compared to some of the emerging economies with which we must now compete.

Of course, if the public sector was efficient there might still be an important social justification for higher tax. But this argument is absent. As a working paper cited in the NCC report has shown (Public Sector Efficiency: An International Comparison; Afonso, Schuknecht and Tanzi; 2003) Ireland fares very badly in terms of efficiency in public spending.

Refreshingly, more Europeans are beginning to accept the wisdom of Ireland's economic model. Last week European Central Bank president Jean-Claude Trichet was liberal in his praise of Ireland's economic success, citing us as an example of a country that had grasped reform and benefited from it. And a few weeks earlier a delegation of distinguished Swedish visitors came here to study our economic model.

So whatever about modern Romans being elegant and slim, the ancient Romans eventually grew too fond of the good life. When the barbarians came clamouring at the gates, Roman civilisation was too weak to defend itself and the Dark Ages began.

As the Competitiveness Challenge report has warned us, the proverbial barbarians are knocking on the door once more. If we want to preserve Europe's social model, we must change it first.