The Urbanophile has an interesting post entitled “Are States An Anachronism?” The whole thing is worth a read, but I’ll relay a couple of thoughts here. He notes that state/city legislative power is different from state-to-state. In Illinois, Chicago dominates and the state laws tend to reflect this with policies that help a major, international city, but, in so doing, harm smaller cities in the state that have to compete against cities in Indiana. Tax policies that actually help Chicago and allow it to compete globally might harm small cities that have no hope of competing globally but have to look for economic opportunities more locally.
The reverse, he argues, is true in Indiana where, apparently despite the gripes of non-Indianapolis types like me, the state dominates the city. This allows policies that may help rural areas and smaller cities while hindering Marion County’s ability to compete globally. (He gives examples.)
Definitely worth a read.