Taxing Losses: Economic Suicide or Shrewd Trade Policy?

Abstract

The ancient Nabateans had an economic law that penalized those who diminished and rewarded those who increased the common property. Normally, such a law could reduce long-run growth, but the Nabateans flourished. In the context of their nearly pure trade economy, this law enhanced the city of Petra's ability to accumulate wealth by discouraging competitive price reductions (a strategic trade policy). Under general assumptions, the policy would also have penalized inefficient traders, reduced the number of traders, and increased aggregate saving.