The United States federalist system divides and shares powers between the federal government, each of the 50 states, and tens of thousands of county and municipal authorities. As may be expected across such a broad, decentralized spectrum, the economic impact and size of the public sector varies considerably by region.
Using data from the Bureau of Economic Analysis, 24/7 Wall St. calculated state and local government GDP in every state to identify the states with the largest and smallest governments. We ranked states based on combined state and local government GDP per capita. Differences in the size of state and local governments are driven by a range of factors, including climate, the economy, and the priorities of local voters.
Examples of the kinds of state and local government expenditures that would factor into GDP include social spending, schools, water treatment, police cars, and snow plows. State and local government employee salaries also contribute to overall state GDP, and as a result, some of the states that rank highest on this list are also the states where the most people work for the government.
The states that rank highest on this list are those that spend the most on goods and services on a per capita basis — and high government spending requires funding. High-ranking states on this list tend to have high median household incomes, which translates to a strong tax base. Several of the states with the largest governments are also the states where Americans are paying the most taxes.
There are exceptions, however. Several of the states with the largest governments have relatively low taxes per capita and fund government operations largely through resource extraction. In Alaska, for example, residents are even paid annual dividends that come from oil extraction royalties.
The size of a state’s government as measured by GDP is not necessarily an indication of how effective it is. Only four of the 10 states with the largest governments also rank among the top 10 best-run states.