4. Consider the model represented by the game-tree below, where an incumbent government has to make a choice about the level of fiscal expansion (F) before the election, and the voters face a choice about whether to reelect the incumbent or not. Incumbent's pay-offs are to the left and voters' pay- offs are to the right. F is the level of pre-electoral fiscal expansion (varies between 0 and 1), e is the incumbent's level of competence, x is fiscal transparency (varies between 0 and 1), and 0 is how attractive the electoral challenger is from the viewpoint of the powers. R are the rents which the government receives from being in office, while 6 is the discount factor (varies between 0 and 1) which represent the relative value of being in office in the second term. There is full information, and voters know e, F and 0 before making the choice whether to reelect the government or not. After the election, the fiscal expansion is repaid by the government, whether it is elected or not (intuitively, all governments have to pursue austerity policies after the election if there has been a fiscal expansion, which always hurt the (former) incumbent government). Voters Incumbent 4.1. (10%) How does the attractiveness of the challenger (0) affect the level of fiscal expansion everything else being equal? (Maximum 50 words/symbols). 4.2. (10 %): How does government competence (e) affect the level of fiscal expansion everything else being equal? (Maximum 50 words/symbols). Incumbent Decide on level of fiscal expansion (F) Voters Reelect Do not reelect R+R8-F, e+F R-F,0