Tax privacy concerns hamper digitization of the nanostore channel

Abstract

Various entities, such as startups, suppliers, and governments, face substantial difficulties in convincing nanostore shopkeepers to adopt digital technologies. Given the informal status of nanostores, we posit that shopkeepers experience Tax Privacy Concerns from their operational records potentially becoming transparent to the tax authorities, which hampers their inclination to digitize. Through the application of a survey and vignette experiments in the field with hundreds of shopkeepers across three cities in Latin America, we find consistent evidence for the negative role of Tax Privacy Concerns, above and beyond shopkeepers' Willingness to Share Data with various entities, Trust in the government and other entities, and general Privacy Concerns. Further, we show that having entities that shopkeepers trust and are willing to share data with offer technological solutions does not mitigate shopkeepers' Tax Privacy Concerns and boosts digitization. In contrast, positive word of mouth that data are unlikely to be shared with the tax authorities does mitigate Tax Privacy Concerns. Overall, our findings provide novel evidence for the existence and influence of privacy concerns for operational data among microentrepreneurs, which answers calls in the extant literature to explore privacy concerns beyond the consumer context.