We study the returns to cognitive ability in the labour and capital market. Using population-wide Swedish military enlistment data and administrative tax records, we find that ability matters significantly more for capital income than for labour earnings.
This result persists after controlling for savings, bequests, educational attainment, occupational choice, and the parental economic position. The pattern is similar for men and women, surprisingly robust over time, and larger pre-tax than post-tax. In addition, cognitive ability is significantly positively correlated with wealth returns.
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