What about countries with almost no government? Don't they just collapse?
No country in the World Bank panel has government spending below ~8% of GDP. Territories with near-zero formal government either collapse and lose World Bank coverage, or informalize so completely that GDP measurement breaks down. The data cannot speak to the sub-8% range, and what institutions classify as 'state failure' often means 'a territory that permits transactions we have prohibited' — those transactions represent real welfare gains by revealed preference.