A discussion paper on transport policy published by the Institute for Public Policy Research said stricter appraisal of costs and benefits would rule out many "prestige" projects such as trams.
In its recommendations, it advised bluntly: "Drop tram dreams: cities must accept that showpiece transport projects are unlikely to catalyse economic growth and/or regeneration on their own."
The comments were seized on today by the Scottish National Party, which has vowed to cancel Edinburgh's 592 million trams scheme if it wins power at the elections in May.
Work is due to start in just over a week on digging up roads to divert utility cables and pipes ready for construction of the tram line from Ocean Terminal to the airport, due to open in 2010. The IPPR paper comes after the report into UK transport policy published at the end of last year by former British Airways chief Sir Rod Eddington.
The think tank claimed that in all the controversy over road pricing, people overlooked the main recommendation of the Eddington report - the re-prioritising of the 18 billion spent on transport projects in Britain every year towards improving economic growth.
The IPPR warned all projects would have to be carefully justified, with central government giving its blessing to select packages of network improvements and a limited number of large schemes.
SNP Lothians MSP Kenny MacAskill said the IPPR analysis showed trams were "Labour's folly". He said: "It is quite clear investment in existing transport infrastructure, whether bus or train, is much better value than a fancy scheme that's there to make the Labour council look good."
But council leader Ewan Aitken defended the scheme, saying: "The IPPR is quite right, trams won't deliver on their own, but we are not having trams on their own.
"We have the best opportunity because they will be truly integrated, with one company running both trams and buses."