The "race to the bottom" question

I see that the headline is: Ireland moves to close corporate tax loophole" Well, about time, I think most people would say.

But I did note on his twitter feed a couple of days ago that Jason Soon thought that Bono defending Ireland's low tax regime was "sensible".

I would have been more sarcastic myself:  "Super rich tax minimiser thinks countries that charge less tax are great."  I generally would go along the line in this article.

Bono argues that lower tax is the only thing that Ireland has got going for it on which to build prosperity.     Yet aren't there plenty of other small countries that are doing OK in fairly niche fields?   Some of Scandinavian ones, with their corporate tax rates that range from about from 20 to 27%.  Even New Zealand, which (as far as I can tell - correct me, anyone) is riding high on the cow's back, of all things, to be doing OK, and with a corporate tax rate of 28% (versus Ireland's "standard" rate - before the offshore business - of 12.5%.)     International corporate tax rates all appear at this site.

They make for some interesting reading, and (as one would expect) national economic health is not always  co-related to the corporate tax rate.   Obviously, infrastructure and security issues matter.  The oddest example is at the extreme, where it would seem Vanuatu looks particularly attractive to companies at 0%, but then again, the note contains this summary:

Corporate income tax is not levied within the Republic of Vanuatu. Furthermore, there are no income taxes, estate duties, gift duties, capital gains taxes, tax treaties or withholding taxes.

I'm not at all sure what this means for how the country runs...

The main question I have to lovers of competitive tax regimes (who, largely, by not so odd co-incidence, also want governments to be as small as possible) is this:    how do you avoid the "race to the bottom" - that if all governments undercut each other, they must at some point develop the problem of not raising enough revenue to do the things reasonable people expect governments to do.

And don't just give me some rubbish that is along the lines of "well, government can just never get small enough, and people have to adjust to that."  Only a tiny minority of science fiction loving libertarians go along with the extreme views of how small government should be - the rest of the world is happy with the role of government in welfare developed over the 20th century, in a broad sense.

We know that governments can suffer from cuts that are too severe - look at Kansas, which seems to have Laffer-ed itself into some serious fiscal trouble.   (By the way, I know that the Right's answer to that is "just you wait and see.  They'll work....eventually."   Unfortunately, Stephen Moore, when defending himself on these grounds against Krugman seems to have made some embarrassing mistakes in his figures which had to be publicly corrected.)

And of course there has been much commentary that the Bush tax cuts just didn't work, and have cost "trillions" in revenue.

So tell, me, international tax competition advocates:  how does your theory avoid a race to the bottom that is going to harm countries?