Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

kindly help me solve the problem attached 5. Consider a model, in which a (median) voter makes the choice about whether the reelect an incumbent

kindly help me solve the problem attached

image text in transcribed
5. Consider a model, in which a (median) voter makes the choice about whether the reelect an incumbent or not, and the incumbent makes the choice with regards to which level of pre-electoral fiscal expansion to choose. First, the incumbent makes the choice about the level of pre-electoral fiscal expansion F (varies between 0 and 1), then the voter decides whether to reelect the incumbent or not. The incumbent gains a payoff of R from being reelected but has to pay for the pre-electoral fiscal expansion represented by the squared of this expansion (F2). The chance that the voter reelects the government increases with the level of the pre-electoral fiscal expansion but is also determined by the lack of fiscal transparency T (varies between 0 and 1). Thus, with a T of 1, there is no fiscal transparency, whereas with a T of 0, there is complete fiscal transparency. Consequently, the utility of the government is represented by the function below. FTR - F2 5.1. (10 %) What level of fiscal expansion (F) will the incumbent choose (Hint: Maximization problem. Use first- order-condition)? Show calculations. 5.2 (5 %) Based on the solution above, which factors increase the level of pre-electoral fiscal expansion? 5.3 (5 %) Imagine that the voter has complete fiscal transparency (T=0). In this situation, what level of fiscal expansion will the incumbent choose

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Business Law Principles For Today's Commercial Environment

Authors: David P Twomey, Marianne M Jennings

2nd Edition

0324303947, 9780324303940

More Books

Students also viewed these Economics questions

Question

How are most students funded?

Answered: 1 week ago