The Nevin Economic Research Institute says Ireland spends less than similar countries on things that are important for long-run economic growth - notably education, infrastructure and research.
It says the country is under-spending in these areas by about €3bn a year, and says the Government should abandon tax cutting plans to fund spending increases.
Public spending is notoriously difficult to compare across countries, but the Nevin Institute has looked at per capita government spending in ten EU countries where output per head is €30,000 or more.
These ten rich countries include Ireland.
They find Ireland spends more than the group average on some things, such as healthcare.
But on things that boost the long-run ability of the economy to grow - such as physical infrastructure, education and research - Ireland lags behind.
The Nevin Institute thinks the under-spend in these three areas is about €3bn a year - about €2bn of that under-spend is on education per pupil at primary third level.
It thinks a further three quarters of a billion a year is needed for infrastructure, while Ireland had the lowest research spend of the ten rich EU states surveyed.
It says the Government should stop cutting taxes and divert the money into higher spending, to avoid future growth constraints.
NERI Director Dr Tom Healy added: "There is no economic case for tax cuts over the next three years particularly given existing spending deficits and future spending pressures."
It says that by 2021 Ireland will have the lowest public spending to output level in the entire EU, if policies do not change.
It says the IMF projects a spending to GDP level of just under 26% by then, compared with an EU average of 46.6%, and 36% in the US.
In an economic analysis published as part of its latest quarterly economic analysis, the trade union-funded institute says such a low level of public spending "will have consequences for the future provision and quality of public services and infrastructure, and has implications for the sufficiency of welfare payments".
It argues for spending increases that favour economic growth such as those that increase either the amount of labour inputs employed or those that increase average labour productivity.
It cites education, infrastructure and research and development as three key areas of government spending that enhance long run economic output.
It argues that investment in human capital development is crucial for long run growth, and says that under-investment by Ireland in education per capita is "a false economy in the long run".
Ireland, it says, spends about 80% of the average on primary education per pupil, and 76% of the average on third level education.
The comparator group is Luxembourg, Denmark, Sweden, Netherlands, Austria, Finland, Germany, Belgium, UK and France.
Irish total government spend per capita, excluding interest payments which are high in Ireland because of the large public debt, was €14,502, some 85% of the population weighted average of the ten other countries of €17,112.
It says efficient investment in infrastructure is also strongly related to a long run increase in a country's productive capacity.
Prolonged under-spending leads to bottlenecks that hold back growth potential.
The report says over the years 2013 to 2016 Ireland spent an average of €912 per capita on infrastructure, about 86% of the peer group average of €1,059.
Only Belgium and Germany spent less.
Scaled up to the full population level it says the under-spend is about €0.7bn.
The report says innovation and R&D levels are determinants of long run productivity gains, competitiveness and growth, but it finds that Ireland had the lowest level of R&D spending per capita of all 11 countries in 2014 and 2015, with just 61% of the average for the peer country group.
One of the authors of the research, NERI Senior Economist Dr Tom McDonnell, said that "the best way to Brexit-proof the economy is to boost its long-run productive capacity. That means investing in our infrastructure, our people and new ideas".
He was critical of the upcoming debate on the budget which he said will focus on €350m of net fiscal space, but ignore longer term structural problems.
"It’s all very well to fiddle at the edges and concentrate on €350m next year.
"But we have to look at structural flaws and weaknesses - what will be needed in 2030 or beyond, what we need to attain, and what we should be investing -what is the optimum amount.
"Ireland is very much at the bottom of the class when it comes to average spend. Are we making a strategic mistake?"
He said the research and its suggestion of higher levels of government spending in some areas "has implications for the public finances, including the rainy day fund, and the tax cutting agenda".
In its quarterly economic analysis, the Nevin Institute projects what it calls "robust employment growth" in 2017 along with strong real GDP growth of 4.4%.
The unemployment rate should fall below 6% in early 2018.
Despite improving conditions, NERI says its analysis is that the economy is not overheating as of yet, but will reach full capacity and possible constraints by 2019.
