Abstract: This research explores how and why federal income taxes and spending are not distributed evenly across regions. Any standard tax on income will fall more heavily on workers who choose to live in cities that offer higher wage levels—cities with high productivity, low quality-of-life, or inefficient housing markets. However, in equilibrium, when workers are mobile and costs-of-living adjust, workers are not better off in high-wage cities, although they pay higher taxes, and an inefficiently low number of workers live in high-wage cities. According to calibrated results for the United States, workers pay 15 percent more federal taxes (net of benefits) in high-wage cities, lowering long-run employment in these cities by 15 percent, land and housing prices by 25 and 4 percent; the opposite occurs in low-wage cities. The inefficient distribution of employment over space costs 0.28 percent of income per year (34 billion dollars in 2005). Indexing taxes correctly to local wage-levels can mitigate these costs; indexing to cost-of-living is less effective, and possibly counterproductive. Deductions in the tax code for housing and property taxes act like a weak form of cost-indexation, and in the U.S. economy help workers to locate slightly more efficiently. The distribution of federal spending across areas can be tied to legislative representation. Theoretically, with two parties, greater bargaining power of representatives in the majority party—power either from greater proposal rights, or the ability to pass legislation using coalitions excluding minority-party representatives—can help these representatives procure higher levels of spending for their districts. Furthermore, ideological differences between parties imply that the party affiliation of a representative may influence the composition of spending his district receives. Empirical estimates from the United States—using within-state variation based on fixed-effect and (quasi-experimental) regression-discontinuity designs—find that states represented by congressmen in the majority receive greater federal grants, especially in transportation. Weaker evidence suggests this greater bargaining power comes more from party-coalition effects than proposal power differences. States represented by Republican congressmen receive substantially more defense spending than those represented by Democratic congressmen; the latter receive significantly more spending for education.