This effectively puts limitations on the local freedom to change the tax rate (Lotz et al., Setting the grant level is important for the overall fiscal policy of the central government, while agreeing on changes in the local income tax rate is important for the budgeting process of the individual municipalities. Such a sanction system was institutionalised by a budget law from 2012 (Houlberg et al., Even though these sanctions are related to the overall economic performance and not the economic performance in individual municipalities, Lotz et al. (