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The study examines the distributional implications of forest income on poverty and income inequality in rural Nigeria using Gini and poverty decomposable techniques. The study finds that forest income reduces both income inequality and poverty in rural Nigeria. Analysis of the determinants of forest income using Heckman’s 2-step sample selection model indicates that the decision to participate in forest extraction increases with more access to community forest areas, larger and poorer households, membership in forest management committees; and decreases with higher educational attainment and higher transfer income earnings. Likewise, forest income was found to be positively and significantly related to male-headed households, poorer heads of household and households that have more access to forest resources outside the community forestry areas. Furthermore, poverty and inequality simulations revealed that household welfare in rural Nigeria could be improved through policies and programs that; can stimulate increase earnings from minor forest resources, assist households to earn income from alternative sources such as agriculture and commerce.