This thesis is focused on evaluating the effects of irrigation development in BanjarnWoreda on poverty and income distribution. Using multivariate analysis, therndeterminants of rural income has been assessed. To avoid the problem of omittedrnvariables that creates inconsistency in estimation, the fixed effects model has beenrnemployed. The researcher has also used Gini coefficients to evaluate the impact ofrnirrigation on income distribution.rnrnFrom the study, it was found that our key variable, irrigation, is a significant determinantrnof total income of rural households. Hence, using the simulation Famework, irrigationrnhas been witnessed to have a greater contribution in reducing poverty incidence in thernstudy area. In addition to this, the signs and significance of coefficients of otherrnimportant variables such as dependency ratio, household size and proportion of outputrnaffected by negative shocks were found as expected. Moreover, income of households thatrnis attributable from irrigated lands was found influential in abating income inequalityrnamong rural households in the study area. Thus, continued investment in new irrigationrnprojects and maintenance of existing systems in Banja Woreda will help to attain therngovernment's rural welfare improvement goals. Moreover, as reducing poverty andrnrndecreasing inequality both have growth-enhancing effects; irrigation investment couldrnhave an added benefit. Therefore, Irrigation investment in rural Banja Woreda appearsrnto be an investment that can lead to both growth and equity.