There are six forms of government in Civilization II, each with its own unique strengths and limitations.
Anarchy, like in all other Civilization games, is a transitional government. During this time, which may last anywhere from one to four turns, taxes are not collected and no scientific research is conducted. Three units can act as military police in a city, with each unit contenting one unhappy citizen. Military units are free until the number of units calling the city home exceeds that of the size of the unit's home city. Settlers also require one food for support. The maximum rate in anarchy is 60%.
The length of anarchy in the epic game is determined solely based on the turn that you declare a revolution (or in rare cases, when your citizens revolt). Civilization players have identified that every four turns starting with the fourth is a special turn, as anarchy will always end after these turns. Thus, the turn before these turns (that is, every four turns after the third) are the ideal times to change governments, as you only have to endure one turn of anarchy. A civilization with the Statue of Liberty wonder will also endure only one turn of anarchy as well.
Despotism is the form of government that starts each and every epic game. In a despotism, three units in a city can act as military police, contenting one unhappy citizen per unit. Units are free until there are more units that call a city home than the size of a city (that is, a size six city will allow for six free units). Settlers and Engineers will also require one food for support. Despotism also suffers from what is commonly known as the despotism penalty, which disappears if a city is celebrating "We Love the King Day": a city working a tile that produces three or more of anything (food, shields, or trade) produces one less. The maximum rate in a despotism is 60%.
Despite the despotism penalty and the inherent corruption and waste problems, many players employ despotic conquest (winning by conquest while in a despotism) as a quick method of winning a game.
Many beginning players will attempt to bee-line to Monarchy as quickly as possible, because of its reduced corruption and waste and because of its lack of the despotism penalty. Monarchies employ similar military policing as that of despotisms, and Settlers and Engineers require one food for support. The maximum rate is higher compared to despotisms, at 70%. However, unlike despotisms, only three units from each city are free.
Communism is one of the better governments for warmongering, and especially espionage. Under communist governments, three units in each city can act as military police, contenting two unhappy citizens each. Corruption and waste are next to nothing (one trade arrow or shield lost in 100 produced), and spies are created veteran. Settlers also require two food from its home city to support. The maximum rate under Communism is 80%.
Fundamentalism is a type of government based on religious zeal. Because of this, scientific research is cut in half. However, citizens will never be unhappy for any reason, and city improvements that makes citizens content instead produce gold equal to the number of contented citizens it would have made (needless to say that these improvements do not need maintenance). Fundamentalist governments can also make use of the Fanatics unit, which are always free. Because of the religious zeal, each city can support eight (non-Fanatic) units for free. The maximum rate for a fundamentalist government is 80%.
Because of its science penalty and free support, as well as the fact that civil disorders can never occur in a fundamentalist government, fundamentalism is an ideal government for warmongering.
Republics are great governments for early growth and trade, and early-game republics often facilitate growth. The drawback to republics is that no unit comes free of support, and each ground or sea unit with attacking power beyond the first (and each air unit) that is outside of a city or a fortress up to three squares from a friendly city will make a citizen unhappy. There is also no military police, making improvements such as temples and cathedrals more important. Settlers and Engineers also require more food for support compared to other governments, requiring two.
Republics also enjoy a trade bonus, as well as a maximum rate of 80%. A republican city will grow by one while celebrating "We Love the King Day" as long as it has sufficient food.
Democracy is arguably the best form of government in Civilization II due to its numerous abilities. There is no restriction on maximum rate, and cities generate extra trade. As well, units are immune to bribery and it costs more for other civs to bribe a city under a democracy. There is no loss of shields or trade due to corruption and waste, and courthouses make one content citizen happy. If a city in democracy celebrates "We Love the King Day", the city will grow by one citizen each turn as long as it has sufficient food.
However, these benefits come at a price: there is no free support, and so all units must be supported with a shield from the unit's home city, and each unit (with attack power) that is not in a city or a fortress within three squares of a friendly city will make two people in the unit's home city unhappy. To make things worse, air will always make two people from the unit's home city unhappy. This makes improvements such as temples and cathedrals that much more important, as well as having the Shakespeare's Theater wonder in a city with high shield output. Democracies are also very fragile, as all civil disorders must be taken care of immediately or the citizens revolt. Settlers and Engineers also require two food from its home city to support.
Democracies also suffer from its relative inability to declare war. The senate will prevent almost every attempt at warmongering. Thus, the United Nations wonder is a valuable asset to any democracy, as it reduces the senate's influence to a more tolerable level.