Because Germany has a federal system, state (Land ; pl., Länder ) and local governments also have important functions. This reflects the German tradition, which before Hitler combined a mix of national, Land , and local structures with carefully defined and deliberately circumscribed powers. Land and even local authorities are involved in many economic functions, such as social services, development and energy policy, education (including vocational training), public housing, environmental protection, and industrial policy. They also share certain tax revenues that are centrally collected but distributed among the central, Land , and local authorities in accordance with carefully negotiated ratios that were changed after unification slightly to the advantage of the new eastern Länder .

The Länder do not always act and think alike. Different old Länder have followed different economic policies since the early years of the Federal Republic. On the one hand, the minister presidents, or heads, of two Länder , Bavaria and Baden-Württemberg, have stressed industrial development policies that have departed radically from those of others, putting their Länder into the forefront of German technological development. On the other hand, the Länder of North Rhine-Westphalia and the Saarland for a long time concentrated their resources on subsidizing coal and steel production, entering the competition for new industries much later than other Länder . The possibility for creating separate Land policies has also encouraged some new Länder to try their own development policies. They have invited potential investors from other countries to visit them, and they have engaged in export promotion.

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Source: U.S. Library of Congress