This paper investigates whether available evidence supports the common hypothesis that households living near tropical forests clear additional land over time because they cannot finance desired agricultural investments. I show that theoretically the effect of increases in income on land clearing is ambiguous. Using panel data, I investigate this hypothesis in Peru. In this sample income is positively correlated with land clearing, though at a decreasing rate, and, because of labor market constraints, land clearing is positively correlated with household size. Marginal increases in income are not associated with increased fertilizer expenditure. Policies to reduce both poverty and deforestation may exist, but small increases in incomes of the poorest are unlikely to reduce deforestation. Targeted support for the purchase of inputs and improvements in local labor markets may be more effective tools to raise incomes and reduce pressure on forests