The German federal state is a complex entity. It consists of a central Federal Government and 16 federal states. The Basic Law lays out which issues fall within the ambit of the Federal Government and which devolve to the federal states. As such the federal system in Germany is similar to that of other federal countries. Public life in Germany is predominantly based on central laws. In accordance with the principle of subsidiarity citizens, on the other hand, deal almost exclusively with state and local authorities acting on behalf of the federal states. The reason for this is the aim of the Basic Law to combine the advantages of a unified state with those of a federal state. In everyday life the citizens of other federal states have far more frequent dealings with representatives of central government.

The Basic Law stipulates that it be possible to compare living conditions throughout Germany. Essentially these are determined by economic and social policy. With regard to financial policy the German constitution accords the federal states considerable leeway in the financing of their duties. All high-revenue taxes are decreed by law, though this needs the approval of the Bundesrat, which represents the states at federal level. Part of these taxes goes to central government alone or to the federal states and another part, including the particularly lucrative taxes, is divided up between central government and the federal states. To this extent the German federal state resembles a centralized state. Nonetheless it is the federal states that control the major part of pan-state administration. This means that federalist elements dominate the state administrative systems. First, its own administrative system enforces the laws that apply in that particular state. In addition they also execute most central laws. Given the large number of duties passed down from central government to the federal states several of them have, in the past, had to take on enormous debts. In 2009 an amendment was made to the constitution forbidding them to raise further loans as of 2020 and limiting the amount of new debts central government can take on from 2016 – with a proviso for economic crisis situations – to a maximum of 0.35 percent of the gross domestic product (the debt ceiling). 

There are three pan-state functions the individual federal states exercise on their own: schooling and tertiary education, internal security, including policing, as well as the organization of local self-government. Thanks to the wide-ranging rights pertaining to guaranteed participation they enjoy in the Bundesrat, the federal states receive a form of compensation for the fact that central government is the primary body determining legislation.