Government type works a lot like the National Religion concept. When you first create your nation and select your government type a random government type will be selected for your people's "desired government." If your nation's government type is not the same as your people's desired government then your nation's population happiness will be negatively affected (-1 happiness). You can view hints about your people's desired government type on the View My Nation page. There are also other "hidden" ways to determine your population's desired government. You can only change your government type once every 3 days.