This thesis studies and identifies effects of income growth and income inequality on poverty in Honduras. A Poverty Reduction Strategy (PRS) was implemented in Honduras in 2001 with the goal to reduce poverty by half by 2015. Since carrying out of PRS, poverty and inequality has only decreased slightly and growth in income has been small. The effects of growth in income and changes in the income distribution are measured by elasticities, a tool to estimate how growth and inequality affect poverty. The trade-off between growth and inequality is estimated by the inequality-growth trade-off index (IGTI) as a guide to implement appropriate policies. The results of the growth elasticity of poverty suggest growth in income has only had a small effect on poverty reduction. The inequality elasticity of poverty results imply reduction of inequality has had greater poverty reducing effect than growth. The results of the IGTI suggest PRS policies should focus on growth promotion to reduce headcount poverty in rural areas and a combination of growth and inequality policies in urban areas. If focus is on reducing the poverty gap and the severity of poverty, inequality reducing policies will be more beneficial than growth policies.