Being a federal state helps large states deal with divergent economic performance  Federal states tend to be larger and have different economic cycles. This allows the overall state to cope with different economic cycles by using fiscal transfers (tax) between wealthier states and poorer states to fund government programmes.1 So for example if Mississippi and New Mexico were paying for all their services themselves from their own taxes they would have debts of over 500% of GDP,2however at the beginning of the Republic it was the Southern States who were the richest due to their cotton wealth. 1 Euro Economics, 'Example: Fiscal Transfer 2 The Economist, 2011, 'America's Fiscal Union: Greek Americans,'