SUMMARY
The relative share of different regions in state income and the division of state expenditure between the capital and the countrysides are among the most divisive issues in Icelandic rural policy discourse. This discourse reflects a diversity of attitudes towards social justice and the different interests of different areas. However, there is very little research into the geographical distribution of state expenditures across regions, despite heated arguments over the substantial interests at stake. This research focuses on state expenditures in the Northeast district of Iceland based on the 2011 state budget and additional information collected among various institutions and ministries. Results show that government activities in the east Northland are 11% less than predicted by population or the equivalent of 74 thousand ISK per inhabitant per year. Government activities in Eastern Iceland are 23% less than predicted by population or the equivalent of 159 thousand ISK per inhabitant per year. Yet the state contributes a similar amount to ensure that municipal services are similar in the Northeast and regions of the country and to support agriculture in the Northeast region. As an independent "Northeast state" the region would have a budget deficit of 625 million ISK or 1,2% of total tax revenues based on current state income and expenditure in the region. In comparison the budget deficit of the Icelandic state was 7,9% after financial costs according to the 2011 state budget. This indicates that a hypothetical, independent "Northeastland" could be viable but further research is needed.